India’s current account deficit at 4.9% of GDP in April-June 2013

India's current account deficit (CAD) in the first quarter of the current financial year, 2013-14, rose to $21.8 billion, forming 4.9 per cent of the country's gross domestic product (GDP), up from $16.9 billion (or 4.0 per cent of GDP) in the first quarter of 2012-13.

Preliminary data on India's balance of payments (BoP) now made available by the Reserve Bank of India (RBI) shows an increase in trade deficit for the first quarter of the 2013-14 financial year, due mainly to a rise in imports and some decline in merchandise exports.

Excluding an increase in gold imports to $7.3 billion in Q1 of 2013-14, CAD would work out to $14.5 billion, which translates into 3.2 per cent of GDP.

On BoP basis, the country's merchandise exports declined by 1.5 per cent to $73.9 billion in Q1 of 2013-14, against a decline of 4.8 per cent to $75.0 billion in Q1 of 2012-13.

In contrast, merchandise imports recorded an increase of 4.7 per cent at $124.4 billion in Q1 of 2013-14 against a decline of 3.9 per cent to $118.9 billion in Q1 of 2012-13, primarily led by a steep rise in gold imports in the first two months of the quarter.

Merchandise trade deficit (BoP basis) widened further to $50.5 billion in Q1 of 2013-14 from $43.8 billion a year ago.

While growth in services exports moderated to 2.1 per cent to $36.5 billion in Q1 of 2013-14 compared with a 6.1 per cent growth at $35.8 billion in Q1 of the preceding year, imports of services registered a decline of 5.5 per cent to $19.7 billion against a growth of 19.3 per cent to $20.8 billion in the corresponding quarter of preceding year.

Net receipts on account of services trade during the quarter were higher at $16.9 billion compared to $15 billion in the corresponding period of 2012-13.

Net outflow on account of primary income, at $4.8 billion in Q1 of 2013-14, was lower than the $5.2 billion outflows of the preceding quarter as well as the $4.9 billion net outflows of the corresponding quarter of 2012-13.

Trade deficit, coupled with a slow recovery in net invisibles (income and services), led to widening of CAD to $21.8 billion in Q1 of 2013-14 from $16.9 billion in Q1 of 2012-13.

Notwithstanding a net outflow in portfolio investment led by FII debt outflows, net inflows under capital and financial account (excluding changes in foreign exchange reserves) rose by 25.2 per cent to $20.5 billion in Q1 of 2013-14 from $16.4 billion in Q1 of 2012-13.

The rise was mainly on account of increase in FDI and loans availed by banks.

While net foreign direct investment surged to $6.5 billion in Q1 of 2013-14, from $3.8 billion in Q1 of 2012-13, net portfolio investment registered a marginal outflow of $0.2 billion compared with an outflow of $2.0 billion in Q1 of 2012-13, primarily led by the debt component of FII investment.

Outflow of portfolio investment occurred essentially from the third week of May 2013 after the US Fed indicated the possible tapering of quantitative easing, RBI noted.

Net overseas borrowing by banks increased by 57.5 per cent to $4.7 billion in Q1 of 2013-14 from $3.0 billion in Q1 of 2012-13. Net external commercial borrowings at $0.4 billion in Q1 of 2013-14 remained almost unchanged from its level in Q1 of 2012-13.

Higher repayments of trade credit moderated net inflows under 'trade credit and advances' to $2.5 billion in Q1 of 2013-14 from $5.4 billion in Q1 of 2012-13.

On a BoP basis, there was a slight drawdown in foreign exchange reserves of $0.3 billion in Q1 of 2013-14 against an accretion of $0.5 billion in Q1 of 2012-13, RBI said.