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Trade deficit spirals, govt readies steps New Delhi, March 28 The CAD, which is the difference between inflow and outflow of foreign currency, “widened from 5.4 per cent in Q2 (July-September) to a record high of 6.7 per cent of GDP in Q3 (October-December), driven mainly by large trade deficit”, the RBI said in its report today on the Balance of Payments. The report said while the merchandise exports did not show any significant growth during the third quarter ending December 2012, the imports shot up by 9.4 per cent, spurred largely by oil and gold imports. Apart from these factors, sources say the large trade deficit with China is also fuelling the high current account deficit. The trade deficit, the RBI said, widened to $59.6 billion in the third quarter, up from $48.6 billion in the corresponding quarter a year ago. During April-December 2012, the CAD stood at $71.7 billion accounting for 5.4 per cent of the GDP as against $56.5 billion (4.1 per cent of the GDP) in the same period of 2011. The RBI report said the CAD in Q3 rose by over 61 per cent to $32.6 billion from $20.2 billion in the corresponding quarter last fiscal. The central bank said the surge in capital inflows, mainly on account of portfolio investment, would help finance the higher CAD. The FII inflow during the quarter rose to $8.6 billion from $1.8 billion a year ago. Reacting to the CAD numbers, the Finance Ministry said in a statement the government was committed to bringing down the CAD over time and would ensure that it was financed safely through sufficient foreign inflows. The ministry said if the current trend of improvement in exports and steadiness in imports persisted, the CAD was likely to moderate from here. The CAD for the fourth quarter was expected to be smaller.
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