Current account gap widens to 4.9% of GDP

Current account gap widens to 4.9% of GDP

India's current account deficit (CAD) for the first quarter ended June 30, 2013 stood at $ 21.8 billion (4.9 per cent of Gross Domestic Product ) as against $ 16.9 billion (4.0 per cent of GDP) in April-June 2012, according to a data released by Reserve Bank of India on Monday. 

 However, the country’s Balance of Payments (BOP) moved in negative turf due to drawdown of $ 300 million from/to foreign exchange reserves in the first quarter ended June 2013. In April-June 2012, there was a small net accretion to foreign exchange reserves of $500 million, as per the central bank data.

The trade deficit in Q1 this fiscal increased owing to a rise in imports and some decline in merchandise exports. Excluding the increase in gold imports of $ 7.3 billion in Q1 of 2013-14 over the corresponding quarter of the preceding year, CAD would work out to $14.5 billion, which translates into 3.2 per cent of GDP.

On BoP basis, merchandise exports declined by 1.5 per cent to $73.9 billion in Q1 of 2013-14 as compared with a decline of 4.8 per cent at $ 75.0 billion in Q1 of 2012-13.
In contrast, merchandise imports recorded an increase of 4.7 per cent at $124.4 billion in Q1 of 2013-14 as against a decline of 3.9 per cent at $ 118.9 billion in Q1 of 2012-13, primarily led by a steep rise in gold imports in the first two months of the quarter.

Merchandise trade deficit (BoP basis) widened further to $50.5 billion in Q1 of 2013-14 from $43.8 billion a year ago.

While growth in services exports moderated to 2.1 per cent ($36.5 billion) in Q1 of 2013-14 as compared with 6.1 per cent ($35.8 billion) in Q1 of the preceding year, imports of services registered a decline of 5.5 per cent ($19.7 billion) as against a growth of 19.3 per cent at $20.8 billion in the corresponding quarter of preceding year.

As a result, net receipts on account of services during the quarter were higher at $16.9 billion as compared to $15.0 billion in the corresponding period of 2012-13.
Net outflow on account of primary income amounting to $4.8 billion in Q1 of 2013-14 was lower than that in the preceding quarter ($5.2 billion) as well as the corresponding quarter ($4.9 billion) of 2012-13.  The trade deficit, coupled with a slow recovery in net invisibles (income & services), led to widening of CAD to $21.8 billion in Q1 of 2013-14 from $16.9 billion in Q1 of 2012-13.

Notwithstanding a net outflow in portfolio investment led by FII debt outflows, net inflows under capital and financial account (excluding changes in foreign exchange reserves) rose by 25.2 per cent to $20.5 billion in Q1 of 2013-14 from $16.4 billion in Q1 of 2012-13. The rise was mainly on account of increase in FDI and loans availed by banks.

While net foreign direct investment surged to $6.5 billion in Q1 of 2013-14 from $3.8 billion in Q1 of 2012-13, net portfolio investment registered a marginal outflow of $0.2 billion as compared with an outflow of $2.0 billion in Q1 of 2012-13, primarily led by the debt component of FII investment.

Outflow of portfolio investment occurred essentially from the third week of May 2013 after the US Fed indicated the possible tapering of quantitative easing.

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