India’s current account deficit (CAD) widened to a record high of 4.8 per cent of GDP in 2012-13, coming at the back of increasing gold and oil imports. While the numbers were still high, they were below market expectations of 5 per cent at a time when the government is struggling to stem the fall of a weakening rupee against the US dollar.
CAD is the difference between the inflows and outflows of foreign currency or imports and exports of a country. The trade deficit, however, declined sharply to 3.6 per cent of GDP or $18.1 billion in the January-March quarter of 2012-13 as against 4.4 per cent or $21.7 billion in same quarter in 2011-12. CAD was at a whopping 6.7 per cent in the October-December quarter of 2012-13.
Data from the Reserve Bank of India (RBI) released on Thursday said that CAD has risen to $87.8 billion compared to $78.2 billion in 2011-12. The RBI has said earlier that the comfort level for CAD is 2.5 per cent of GDP.
“Burgeoning trade deficit along with significant decline in invisible earnings caused widening of CAD during the year,” RBI said in its half-yearly Financial Stability Report.
The government reacted to the numbers and said that the short-term increase or decrease in trade deficit shouldn’t cause optimism or pessimism. “We must look at the figure at the end of the year where CAD stands...Markets have been over reacting as we have seen in the case of prediction for CAD last year which were much higher than 5 per cent and we have seen that it is much lower than 5 per cent,” the Finance Ministry said.
Meanwhile, A sharp moderation in CAD and strong equities helped rupee rebound by 53 paise to close at 60.19 against the greenback. It plummeted on Wednesday to cross the psychological 60-mark and touched a record low of 60.76.
The S&P BSE Sensex also surged by 324 points to end at one-week high of 18,875.95. On Wednesday, Sensex had slipped by 77 points.
External debt up 13% at $390 bn in FY13
Meanwhile, India’s external debt rose by nearly 13 per cent to $390 billion in 2012-13, mainly due to rise in short-term trade credit and external commercial borrowings (ECBs) in the back of high current account deficit.
“The high current account deficit witnessed during 2012-13 and it’s financing increasingly through debt flows particularly by trade credit resulted in significant rise in India’s external debt during 2012-13,” RBI said.
The increase in the debt during 2012-13 was primarily on account of rise in short-term trade credit. There has been sizeable rise in ECBs and rupee denominated Non-resident Indian deposits as well, it said.
The total external debt was about $345.5 billion at end-March 2012.
As per the data, share of ECBs ($120.9 billion) continued to be highest at 31 per cent of the total debt, followed by short term debt (24.8 per cent) and NRI deposits (18.2 per cent).
Trade credit components of external debt showed an increase of $20.3 billion during the period.