Jan-March current account deficit rises to 30-year high

Jan-March current account deficit rises to 30-year high Zeebiz Bureau

New Delhi: India's current account deficit ( CAD) widened to USD 21.7 billion, its highest in at least 30 years in the March quarter as the trade deficit during the same period exceeded USD 50 billion due to large increase in imports.

The stress witnessed in India’s balance of payments (BoP) in Q3 continued during Q4 of 2011-12 as well. While capital inflows improved reflecting significant increase in portfolio investment and non-resident deposits, they fell short of financing requirements, resulting in a drawdown of foreign exchange reserves.

The trade deficit during the fourth quarter exceeded USD 50 billion (10.6 percent of GDP) and CAD rose to USD 21.7 billion (4.5 percent of GDP).

On a BoP basis, growth in merchandise exports (y-o-y) decelerated sharply to 3.4 percent during Q4 of 2011-12 from 46.9 percent during the corresponding quarter of 2010-11.

Imports registered a growth of 22.6 percent during Q4 of 2011-12 as compared with 27.7 percent in the corresponding quarter of the preceding year.

With export growth remaining substantially lower than import growth, the trade deficit widened to USD 51.6 billion in Q4 of 2011-12 as compared with USD 30.0 billion in Q4 of 2010-11.

Growth in net services exports in Q4 of 2011-12 also decelerated to 21.1 percent as compared to 72.0 percent in Q4 of 2010-11.

As a result of the falling exchange rate, net secondary income (private transfers) receipts rose significantly by 24.0 percent (y-o-y) to USD 16.9 billion in Q4 of 2011-12 as compared with USD 13.6 billion in Q4 of 2010-11.

The primary income account (mainly investment income) showed a net outflow of USD 4.6 billion in Q4 of 2011-12, broadly the same as in the corresponding quarter of the previous year.

Consequently, the current account deficit (CAD) widened to USD 21.7 billion in Q4 of 2011-12 which works out to 4.5 percent of GDP (USD 6.3 billion in Q4 of 2010-11 i.e., 1.3 percent of GDP).

Capital and Financial account (excluding change in foreign exchange reserves), on a net basis, recorded a higher inflow of USD 16.5 billion in Q4 of 2011-12 as compared with USD 9.1 billion in Q4 of 2010-11.

Despite significant improvement in the capital inflows in Q4 of 2011-12, there was a drawdown of foreign exchange reserves of USD 5.7 billion (excluding valuation) as against an increase of USD 2.0 billion in the corresponding quarter of 2010-11, mainly because of the deterioration in the current account.

In 2011-12, the CAD rose to USD 78.2 billion (4.2 percent of GDP) from USD 46.0 billion (2.7 percent of GDP) in 2010-11, largely reflecting higher trade deficit on account of subdued external demand and relatively inelastic imports of POL and gold & silver.

Net inflows under Capital and Financial account (excluding changes in reserve assets) were higher at USD 67.8 billion during 2011-12 as compared with USD 62.0 billion during 2010-11. However, there was a drawdown of reserves to the extent of USD 12.8 billion during the year as against an accretion of USD 13.1 billion in 2010-11.