Current a/c deficit doubles in Q2

High oil imports pushed deficit to $6.9 billion.

The country's current account deficit (CAD) almost doubled to $6.9 billion in July-September 2006 from $3.6 billion in the same period of 2005-06 on high oil imports.

The deficit widened in the second quarter despite the support from invisible surplus at $11.0 billion. The current account balance in the April-June period was $4.75 billion, according to the Reserve Bank of India report on the balance of payments released today.

"The deficit is higher as the import growth rate has outpaced the export rate. It is the rising oil prices which have pushed the import bill. However, the widening deficit is not a matter of worry since the import basket has seen a substantial share of intermediate and capital goods going into creating productive assets," said Rupa Parchure-Nitsure, chief economist, Bank of Baroda.

The CAD for April-September moved up to $11.68 billion from $7.16 billion last year. The planning commission has indicated a CAD of 2.8 per cent (as a percentage of gross domestic product) for the target annual economic growth rate of 9 per cent for 11th Five-year Plan (2007-12).

While oil imports clocked 31 per cent rise in Q2 (56.1 per cent in Q2 of 2005-06), non-oil imports saw a moderate growth of 13.9 per cent (43.1 per cent in Q2 of 2005-06) mainly owing to decline in imports of export-related items and gold and silver, the RBI said.

Continuing with the pace of growth in business and professional services and remittances, invisible receipts posted a robust growth of 32.8 per cent in Q2 of 2006-07.

The net capital inflows in April-September 2006 rose to $19.33 billion from $13.07 billion, the central bank said.

The almost nine-fold increase in the NRI deposits to $2.02 billion in Q2 from $233 million a year ago, the jump in external borrowings to $5.09 billion ($2.92 billion) and the higher recourse to short-term credit led to a rise in net capital flows.

The higher recourse to ECBs and short-term credit was possible because of the lower spreads on external borrowings and rising financing requirements for capacity expansion, the RBI said.

Net foreign direct investment (FDI) accelerated on the strength of sustained domestic activity and a positive investment climate with inflows channelling into manufacturing, business and computer services.