Current account deficit widens

Current account deficit widens

As per data released by the Reserve Bank of India on March 28, 2013, India’s current account deficit (CAD) reached a record high of 6.7 percent of GDP in the third quarter (October-December) of the 2012-13 financial year, driven mainly by the large trade deficit. The CAD, which in effect is the difference between the inflow and outflow of foreign capital, had stood at 5.4 percent of GDP in the previous quarter (July-September) of the fiscal.

In monetary terms, CAD widened in the October-December quarter of 2012-13 to $32 billion, markedly up from the $20 billion in the same quarter of the previous fiscal. The rise was mainly on account of a significant increase in oil and gold imports at a time when exports have remained particularly subdued in the wake of an uncertain global environment and recessionary conditions prevailing in the US and Europe, India’s main markets.

During the April-December period of 2012-13, CAD stood at $71.7 billion, which worked out to 5.4 percent of GDP. In the comparable period, i.e. the first half of fiscal 2011-12, CAD had •stood at $56.5 billion, or 4.1 percent of GDR During the October-December quarter of 2012-13, the trade deficit widened to $59.6 billion, up from $48.6 billion in the same quarter a year ago.
As has been mentioned above, the country’s CAD rose to 5.4 percent in the second quarter (July-September) of the 2012-13 fiscal. The reasons for this include the widening of trade deficit and slower growth in invisibles. The rise in CAD to GDP ratio was partly due to slower growth in GDP and rupee depreciation. A steeper decline in exports growth (12.2 percent year-on-year) compared with the imports growth (4.8 percent year-on-year) led to the widening of trade deficit. The trade deficit widened to $48.3 billion during the quarter under review from $44.5 billion during the corresponding quarter of the previous year. While the net services receipts registered reasonable increase, net invisibles earnings could finance only a lower proportion of trade deficit. This was because the net primary and secondary income flows were relatively smaller. Consequently, the CAD worsened to $22.3 billion in the second quarter of 2012-13 as compared to $16.4 billion in the preceding quarter and $18.9 billion in the second quarter of 2011-12.