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Rediff.com  » Business » Current account deficit widens to 5.4% of GDP in Q2

Current account deficit widens to 5.4% of GDP in Q2

December 31, 2012 20:25 IST

Amid moderating pace of exports, the country's current account deficit (CAD) rose to a record high of 5.4 per cent of GDP or $22.3 billion in the July-September quarter.

The CAD, which represents the difference between exports and imports after considering cash remittances and payment, was $18.9 billion in the same period of a year ago and $16.4 billion in the first quarter (April-June).

A higher CAD has adverse impact on rupee value and impacts foreign exchange reserves as well.

Higher pace of imports and moderating exports growth notwithstanding, a reasonable increase in net services receipts lead to the widening of the CAD, the RBI said in a Balance of Payment statement for the September quarter.

"India's CAD widened in Q2 of 2012-13 on account of a larger trade deficit ... As a proportion of GDP, CAD during Q2 of 2012-13 worked out to 5.4 per cent as compared with 4.2 in Q2 of the previous year," the RBI said.

As per experts, in a slowing economy, the sustainable level of CAD is 2.5 per cent of GDP.

Merchandise exports recorded a decline of 12.2 per cent during Q2 of 2012-13 as against an increase of 45.3 per cent during corresponding quarter of 2011-12.

Imports also registered a decline during the quarter, though at a slower pace of 4.8 per cent.

RBI said steeper decline in exports than that in imports led to the widening of trade deficit to $48.3 billion during second quarter, from $44.5 billion a year ago.

The CAD had risen to 4.2 per cent of GDP in the 2011-12 fiscal on account of high gold import and increasing prices of crude oil in international markets. India imports 75 per cent of its crude oil requirement.

India in the past few months has taken steps to check gold imports by levying more duties. The government is also making efforts to channelise people's fund into equities and other financial instruments.

The foreign exchange reserves increased by $5.1 billion during the quarter, reflecting depreciation of the US dollar against major international currencies, RBI said.

As per official data released today, the fiscal deficit in the April-November period rose to Rs 4.13 lakh crore (Rs 4.13 trillion) or 80.4 per cent of the budgeted target for the fiscal.

GDP growth for the current fiscal is expected to be between 5.7-5.9 per cent, which would be the decade's low.

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Tags: CAD, RBI, GDP, India, US