April-June current account deficit widens from previous quarter

Mumbai: India's current account deficit widened to $6.2 billion, or 1.2 percent of gross domestic product, in April-June from the previous quarter, reflecting the worsening global economy as exports were sluggish while foreign investments fell.

Meanwhile, the balance of payments surplus narrowed to $11.4 billion in April-June from $30.1 billion in January-March, although that was wider than $11.2 billion a year ago, according to the Reserve Bank of India (RBI) data out on Friday.

Still, India is far from its precarious situation in 2013, when worries about U.S. Federal rate hikes hit Indian markets hard, sending the rupee to a record low and sparking the worst turmoil since the 1991 balance of payment crisis.

India has also built up its foreign exchange reserves to a record high, while its economy, though sluggish, is expanding more than other emerging economies such as China.

Separate data on Friday showed annual industrial output growth slowed to 4.2 percent in July compared with an upwardly revised 4.4 percent growth a month ago, although that was much faster than expectations of a 3.5 percent expansion.

"The current account situation, despite exports falling, is okay," said D.K. Joshi, Chief Economist at ratings agency CRISIL.

"My expectation is that it (the current account deficit) will further narrow."

India's current account deficit in the April-June quarter was wider than the $1.3 billion, or 0.2 percent of GDP, in the previous quarter. But it was still lower than the $7.8 billion deficit, or 1.6 percent of GDP, of a year earlier.

Exports have taken a hit because of softer global economy, sending the trade deficit to $34.2 billion in April-June compared to $31.7 billion in the previous quarter and $34.6 billion a year ago.

India is likely to continue facing a tougher global environment, with worries about China hitting emerging markets hard since July.

Meanwhile, worries the U.S. Federal Reserve could raise interest rates as early as next week are likely to impact foreign investments to emerging markets such as India.

Foreign inflows into India's debt and equity markets slumped to $545.88 million in April-June versus $13.7 billion the previous quarter.

Foreign investors have now turned outright sellers in equity markets, with record monthly amount of sales in August, although they remain net buyers of $3.72 billion for the year.

But unlike in 2013, when India was seen as one of the most vulnerable emerging economies, the country is expected to suffer less than some of its peers such as Brazil, whose debt was downgraded to "junk" on Wednesday.