India's current account deficit soars to record 6.7%

NEW DELHI (AFP) - India's current account deficit hit a record 6.7 per cent of GDP in the last quarter, official data showed on Thursday, underscoring the nation's weak finances.

The worse-than-expected deficit for the three months to December stemmed mainly from large oil and gold imports and weaker exports amid the global economic downturn.

The figures were more bad news for the Congress-led government which is struggling to stimulate India's economy, whose growth for the financial year to March 31, 2013 is expected to be five per cent - the weakest pace in a decade.

The hefty current account deficit, the gap between inflows of foreign currency and outflows, totaled US$32.6 billion (S$40.5 billion) or a record 6.7 per cent of gross domestic product (GDP).

That was up from US$22.3 billion in the previous financial quarter to September representing 5.4 per cent of GDP.

Analysts had expected a current account deficit of around six per cent of GDP.

Business group Assocham called the new data "extremely disappointing".

"The current account deficit reaching to 6.7 per cent level is untenable," said Assocham president Rajkumar Dhoot.

Last weekend, India's finance minister P. Chidambaram loosened debt market rules to draw more overseas investment to finance the current account deficit, noting it "can be financed only through foreign inflows".

India is seeking to narrow its current account deficit and boost growth in order to avoid the threat of a sovereign debt rating downgrade by global credit ratings agencies.

In September, the government initiated a string of liberalisation measures to open up sectors such as retail, insurance and aviation to foreign investors and jump-start growth before it faces voters in 2014.

Mr Chidambaram has promised a "next generation" of reforms to further pry open the still heavily regulated economy and return it to high growth.

India's central bank said last month it would consider more steps to restrict gold imports and help stem the widening current account deficit.

Many Indians - especially in rural areas where there are few banks - purchase gold in the form of jewellery, bars and coins as an investment.

Energy-scarce India is also heavily dependent on imported fuel to power its economy, importing some 80 per cent of its crude oil needs.