Press Information Bureau
Government of India
Ministry of Finance

08-May-2012 18:58 IST

Government Takes Steps to Contain Current Account Deficit

The current account deficit (CAD) as per cent of GDP during the last five years are given below:

 

 

The CAD is financed by capital account surplus and drawdown of foreign exchange reserves in case CAD exceeds capital account balance.  Capital flows include both equity and debt.  Short term trade credit financed about one-tenth to one-fourth of the CAD in the recent years.

 

The recent increase in CAD is due to widening of trade deficit on account of higher imports of POL and gold & silver.  To lower the impact of gold imports on CAD under balance of payment, Government in the Union Budget 2012-13 has proposed to increase basic custom duty on standard gold bars; gold coins of purity exceeding 99.5 per cent and platinum from 2 per cent to 4 cent and on non-standard gold from 5 per cent to 10 per cent.

 

Further, the Reserve Bank of India has taken certain prudential measures in respect of Non-Banking Financing Companies (NBFCs) predominantly engaged in lending against collateral of gold jewellery, to restrict the loans against gold.  

 

             This information was given by the Minister of State for Finance, Shri   Namo Narain Meena in written reply to a question in Rajya  Sabha today.

 

 

 

* * *

DSM/Hb

Current account deficit containment via customs duty hikes on gold and RBI prudential limits on gold backed NBFC lending. The current account deficit widened through 2007-2011 and has been financed by capital inflows and reserve drawdowns; higher imports of petroleum and gold drove the increase. The Union Budget 2012-13 proposes increased basic customs duty on specified gold and platinum imports, and the Reserve Bank of India has adopted prudential measures restricting gold collateral lending by NBFCs to limit gold financed imports' impact on the balance of payments.