On a High: Current Account Deficit Widens During Second Quarter
On a High: Current Account Deficit Widens During Second Quarter
India’s current account deficit has grown to USD 10.1 billion which is around 2.1% of the GDP during the second quarter of this fiscal. This is a growth from USD 7.8 billion or 1.7% of the GDP in the quarter before this and USSD 5.2 billion or 1.2% of the GDP in the same quarter during the last fiscal.
CAD Increase Due to Higher Trade Deficit: RBI
“The increase in CAD was primarily on account of higher trade deficit, contributed by a deceleration in export growth and increase in imports,” said the Reserve Bank of India (RBI) indicated a press release on Monday, 8th December 2014. The RBI officials also indicated that they are comfortable with the current CAD levels.
On the BoP or balance of payments basis, merchandise export growth decelerated to 4.9% during the second quarter from 11.9% during the same quarter in the year before. Merchandise exports however grew by 8.1% as against fall of 4.8% “largely due to a sharp rise in gold imports.” Net services receipts grew by 3.4% on “pick-up telecommunication, computer and information services from their level a year ago” said the RBI.
Net Outflow and Flow
The net outflow on the basis of primary income (profit/dividend/interest) adding up to USD 6.9 billion during the second quarter was higher than the corresponding quarter in the previous fiscal (USD 6.3 billion) plus the preceding quarter (USD 6.7 billion).
Net Flows via FDI were stable, said the RBI. Portfolio investment noted recorded inflows of USD 9.8 billion as against outflow of USD 6.6 billion during the second quarter of the previous fiscal. Net loan availed by deposit taking corporations/commercial banks experienced an outflow of USD 4.6 billion during the second quarter of 2014-2015 on account of higher repayment of overseas borrowings and increase in overseas foreign currency assets.
Net inflows of NRI deposits stood at USD 4.1 billion which was lower than USD 8.2 billion during the second quarter of the last fiscal. On the BoP basis, net accretion of USD 6.9 billion to forex reserves of the nation occurred as against a drawdown of USD 10.4 billion during the second quarter of the last fiscal.
Trade Deficit
The apex bank also said that with high growth in merchandise exports and marginal rise in merchandise imports, the narrowing of the trade deficit to USD 73.2 billion during the year as against USD 83.8 billion during the first half of 2013-2014 also occurred. “Lower trade deficit coupled with a marginal rise in net services receipts moderated CAD to $17.9 billion in the first half of 2014-15 (1.9%of GDP) from $26.9 billion in the first half of 2013-14 (3.1% of GDP).”
Net inflows under capital and financial account without the change in forex reserves rose by USD 38.5 billion during the first half of 2014-2015 as against USD 15.8 billion during the first half of the last fiscal.Lower CAD and rise in flows for the financial account caused an accretion to India’s forex reserves for as much as USD 18.1 billion during the first half of 2014-2015 as compared to the drawdown of USD 10.7 billion during the first half of the previous fiscal year.
5 Quarter High
India’s current account deficit rose to a 5 quarter high of 2.1% of the GDP during the second quarter ending 30th September as exports growth experienced a slowdown and imports rose because of increase in demand for gold, according to Livemint. Reserve Bank of India (RBI) deputy governor H.R. Khan, has been quoted as having said last week that the central bank is “reasonably comfortable” with the present account deficit scenario on account of lower oil prices. Brent crude has fallen to a new 5 year low of USD 68 per barrel on account of the contention that oversupply would rise till next year after OPEC made the decision to not cut output, says Livemint.
