India may cut gold import duty as current account gap seen hitting 2.5%.

MUMBAI The Reserve Bank of India on Tuesday said the current account deficit in this fiscal is expected to decline to below 2.5 per cent of the gross domestic product (GDP) from 4.8 per cent a year ago, raising hopes of a cut in import duty on gold.

“The full year current account deficit is likely to be below 2.5 per cent of GDP,” RBI said, adding that resumption in portfolio flows and pick up in FDI and External Commercial Borrowing (ECB) should help finance the current account deficit comfortably.

There is pressure on the government to reduce import duty on gold and relax inward shipment of the metal. The government had raised the customs duty on gold in phases from 4 per cent to 10 per cent in 2013 to check the current account deficit.

Besides, the RBI had enforced 80:20 rule to ensure that at least 20 per cent of the imports are exported before the exporters are allowed to import fresh quantities. In the backdrop of improvement in the current account deficit situation, Finance Minister P Chidambaram had said the government would review gold import restrictions by March-end.

The current account deficit was at 4.9 per cent in Q1 and came down to 1.2 per cent in Q2. In the first half, the current account deficit stood at 2.6 per cent.

The current account deficit, which is the difference between inflow and outflow of foreign currency, was at a record high of 4.8 per cent or $88.2 billion in 2012-13.

The RBI, however, also cautioned that government would have to careful with regard to the current account deficit as capital flows to Emerging Market and Developing Economy (EMDEs) in the next fiscal could moderate.

“As capital flows to EMDEs could moderate over 2014-15, there is no scope for complacency and the breather provided by a reduction in the immediate risks needs to be used to develop the resilience of the external sector over the medium-term,” RBI said.

In its Macroeconomic and monetary developments review for the third quarter, the RBI said restrictions on gold import and improvement in global trade has brought down the trade deficit and the current account deficit in the current fiscal.

“Despite a significantly more comfortable external position than in the summer of 2013, both fiscal and monetary authorities need to continue their efforts at macroeconomic stabilisation,” the central bank said.

Source : omantribune.com