Current account deficit at 3.5% of GDP, not sustainable: RBI

• The Reserve Bank today warned that a high current account deficit (CAD) of 3.5 per cent of the GDP in the 2010-11 fiscal is not sustainable and may widen further with the recovery of the global economy.
• However, in the July-September quarter this fiscal, the CAD surged by 72 per cent to $15.8 billion, compared to $9.2 billion in the same period last year due to higher imports.
• India's exports witnessed 36.4 per cent annual growth in December to $22.5 billion, the highest in 33 months, while imports contracted by 11.1 per cent to $25.1 billion, resulting in narrowing of the trade deficit to $2.6 billion, the lowest in three years.
• However, the central bank pointed out that although recent trade data shows an improvement in exports vis-a-vis imports, the  sharp increase in global commodity prices, particularly oil, could have an adverse impact on the trade balance going forward.
• "Faster-than-expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India. This may increase the vulnerability of our external sector. Hence, the composition of capital inflows needs to shift toward longer-term commitments, such as FDI," the apex bank said.
• During the July-September quarter, FIIs pumped $18.8 billion into the Indian economy, but FDI fell to $2.5 billion year-on-year.