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In line with estimates, India’s current account deficit rose to 21.8 billion (4.9% of Gross Domestic Product) for the first quarter ended June 2013, due to rise in imports especially that of gold and shrinking exports.
The CAD for April-June 2012-13 was $16.9 billion (4% of GDP).
The balance of payments (BoP) moved in the negative territory due to a slight drawdown of $300 million from foreign exchange reserves in the first quarter ended June 2013. In April-June 2012 there was a net accretion to foreign exchange reserves of $500 million, according to Reserve Bank of India data.
Economists said the rise CAD figures for Q1 were on expected lines. The reading for the second quarter (July-September 2013) is expected to be better due to growth in exports in July-August plus drop in import of gold. The overall CAD for FY14 is expected to be around 4% of GDP, much higher than sustainable 2.5% level.
The lower trade deficit and higher flow of dollars from overseas Indians, taking benefit of weak rupee, will lead to improvement in the second quarter (ended September 2013). But, India’s the external sector continues to vulnerable, warned D K Joshi, chief economist at CRISIL.
The merchandise trade deficit, in Q1 of 2013-14, widened to $50.5 billion from $43.8 billion in Q1 FY13. The rise was mainly due to a sharp increase in gold imports.
Samuya Kanti Ghosh, chief economic advisor, State Bank of India, said CAD for Q2 (ended September 2013) could decline to $10 billion on the back of drop in gold imports and better exports.
The improvement in the global geo-political situation may bode for crude oil prices. The dialogue between Iran –United States and receding strife in Syria may help to avoid flaring up of oil prices to the benefit of India’s import bill, Deverdra Kumar Pant, chief economist with India Ratings.
Referring to trend on services trade front, RBI said the pace of services exports moderated to 2.1% ($36.5 billion) from 6.1% (35.8 billion) in Q1 of 2012-13.
The imports of services shrunk by 5.1% ($19.7 billion) as against growth of 19.3% ($20.8 billion) registered in Q1of FY13. The accruals on account of services were higher at $16.9 billion as compared to $15.0 billion in quarter year ago.
The net secondary income, mainly comprising the remittances from overseas Indians, declined slightly to $16.7 billion. For Q1 of 2012-13, the secondary income was $16.8 billion.
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 situation on overseas capital flows front was better despite net outflow in portfolio investments led by foreign Institutional investors (FIIs).
The net inflows under capital and financial account were up by 25.2% to $20.5 billion in Q1 of 2013-14 from $16.4 billion in Q1 of 2012-13. The net FDI surged to $6.5 billion from $3.8 billion. The net portfolio investment registered an outflow of $0.2 billion as against outflow of $two billion in Q1 of FY13.
Outflow of portfolio investment occurred essentially from the third week of May 2013 after the US Fed indicated the possible tapering of quantitative easing.
Net overseas borrowings (by banks) were up by 57.5% to $4.7 billion in Q1 from $3.0 billion in Q1 of 2012-13. Net external commercial borrowings at $0.4 billion in Q1 of 2013-14 remained at the same level as that in Q1 of 2012-13.
| Q1 Fy14 June | Q1 Fy13 June | |
| Merchandise trade balance | - $50.5 bn | - $43.8 bn |
| Services (net) | $16.9 bn | $15.0 bn |
| Primary Income* | -$4.8 bn | -$4.9 bn |
| Secondary Income# | $16.7 bn | $6.8 bn |
| Current Account Balance | - $21.8 bn | - $16.9 bn |
| CAD as % of GDP | 4.90% | 4.00% |
-= Sing signifies deficit
CAD – Current Account Deficit
GDP= Gross Domestic Product
*= Compensation of employees plus Investments
#= Personal and transfers (mainly NRI remittances)
Source: Reserve Bank of India
