Current account deficit widens

Figure in the first half already 2.38 times that of 2004-05.

The country's current account deficit in the first half (H1) of 2005-06 has widened to 2.38 times the deficit in the whole of 2004-05.

The current account deficit during April-September 2005 has been $12.95 billion against $485 million in April-September 2004 and $5.4 billion in 2004-05, according to the balance of payments data released by the Reserve Bank of India (RBI) today.

The country's current account deficit in the second quarter ending September 2005 has more than doubled to $7.6 billion from $3.4 billion a year ago. In the first quarter itself, the current account deficit at $5.29 billion was closer to the figure for the whole of 2004-05.

Despite support from invisibles surplus of $8.5 billion, the current account deficit widened due to large trade deficit. Trade deficit more than doubled to $31.63 billion during the first half from $14.76 billion a year earlier.

In the second quarter it jumped to $16.2 billion from $9.62 billion in July-September 2004 due to a surge in capital goods imports and on an inflated crude oil bill.

Non-oil import growth at 50.3 per cent was led primarily by import of capital goods and export related items in tandem with a strong growth in domestic industrial activity. Import of gold and silver also recorded a sharp acceleration, posting a growth of 47.2 per cent in April-September 2005 as against 36.3 per cent a year ago.

"Given a strong forex reserves, the current account deficit at the current level is sustainable," said Abheek Barua, chief economist with ABN Amro Bank. The country's forex reserves stood at $144.05 billion as on December 23.

The invisible receipts including remittances rose in the second quarter to $8.54 billion from $6.12 billion a year ago.

The major contributors to the rise in capital inflows were portfolio investments, external commercial borrowings, NRI deposits and recourse to overseas borrowings by banks.

Accretion to foreign exchange reserves at $5.3 billion in the second quarter of 2005-06 was in contrast to a draw down of reserves in the previous comparable period, RBI said.