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India's current account deficit swelled to a record $12.54 billion in the September quarter and analysts have warned that it could balloon further as the world economy slows, putting pressure on the rupee.
The overall balance of payments fell into deficit for the first time in three years. The BOP deficit in the July-September quarter stood at a quarterly record of $4.73 billion, compared with a revised surplus of $29.24 billion in the year-ago quarter.
The rupee has lost 19 percent against the dollar this year, its worst performance since a balance of payments crisis in the early 1990s, due to a rising oil import bill and foreign fund outflows from the share market amid the global financial crisis.
The country's total external debt stood at $222.61 billion at the end of September this year, marginally lower than the $223.81 billion at the end of June. Based on residual maturity or the remaining time until repayment, the total long-term external debt stood at $130.69 billion and short-term debt at $91.92 billion at end-September 2008. The ratio of foreign exchange reserves to total external debt stood at a comfortable level of 128.6%, the ministry said.
Short-term debt, which includes trade-related credits, foreign institutional investments in government securities and external liabilities of the banking system, increased by $1.49 billion to $50.1 billion. The share of private debt in total external debt continued to increase during the quarter. Private debt accounted for three-fourths of the total external debt at $166.03 billion, while government debt amounted to $56.58 billion.
US dollar denominated debt accounted for 57% of the external debt, followed by rupee denominated debt at 16% and Japanese Yen denominated debt at 12%.
The government's fiscal deficit also widened in the first eight months of the 2008/09 fiscal year, and analysts said it was on course to overshoot its target due to extra spending and a slowdown in revenue collections from sagging domestic growth.
In a move to rev up the domestic economy in the wake of global slowdown, the Government today said it would spend an additional Rs 200 billion in 2008-09 to galvanise rural infrastructure, extend sops worth Rs 18 billion to exporters and take a Rs 87 billion hit on its tax revenues by cutting the Central value added tax (Cenvat) rate by 4 per cent across the board to make cars, consumer durables and even soft drinks cheaper. The government has authorized India Infrastructure Finance Company Ltd to raise Rs 100 billion through tax-free bonds by March-end 2009.
The fiscal measures approved by Prime Minister Manmohan Singh after RBI reduced key short-term repo and reverse repo rates by 100 basis points each and signaled to banks that they must cut lending rates to companies and individuals.
"This must be seen as a complement to the RBI's monetary measures announced yesterday. The attempt is to minimize the impact of the weak global economy on the Indian economy." Planning Commission Deputy Chairman Montek Singh Ahluwalia stated
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