India's current account deficit improves to a 3-year low in 2013

Thanks to some policy curbs.

According to BBVA Research, underscoring India's strengthening external balances, the 4Q13 current account deficit (CAD) eased sharply to -0.9% of GDP (BBVA est: -1.2%), its lowest since March 2009, from -1.2% in the previous quarter and -6.5% in 4Q12.

Here's more:

Concerted policy actions to curb non-essential imports such as gold through custom duty hikes and tighter lending norms, alongside weak domestic demand and a pick up in exports have helped improve India's 2013 current account deficit to its lowest in three years at -2.6% of GDP (BBVA est: 2.7%) from -5.0% in 2012.

Meanwhile, India's balance of payments position turned positive in Q4 (+19 bn vs -10.4 bn in 3Q13) as RBI's unconventional measures, especially the special interest rate swap facility to attract dollar deposits by non-resident Indians, helped buoy the capital account ( +23.8 bn vs -4.8 bn in 3Q13).

Looking ahead, we expect India's CAD to moderate further in 2014 (2.5% of GDP) as global growth gains traction and domestic demand stays weak amid a tight monetary policy backdrop.

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