Current account gap hits record 4.8 percent in 2012-13 (Roundup)

Mumbai, June 27 (IANS) India’s current account deficit widened to a record 4.8 percent of the country’s gross domestic product (GDP) in the financial year ended March 31, due to high imports of gold and oil and sluggish exports, official data showed Thursday.

The current account deficit, the difference between outflows and inflows of foreign currencies, stood at $87.8 billion, or 4.8 percent of the GDP in the financial year 2012-13 as compared to $78.2 billion or 4.2 percent of the GDP in the previous year, according to data released by the Reserve Bank of India (RBI).

“Burgeoning trade deficit along with significant decline in invisible earnings caused widening of CAD during the year,” the RBI said.

The situation would have been even worse had the number not shown improvement in the fourth quarter of the financial year under review.

For the January-March quarter, the deficit moderated sharply to 3.6 percent of the GDP from a historically high level of 6.7 percent reported in the previous quarter.

Current account is the broadest measure of foreign money flows. It tracks trades in goods and services and also investments. According to RBI, the sustainable level of current account gap is 2.5 percent of GDP.

Finance Minister P. Chidambaram said the fourth quarter data was lower-than-expected and the current account gap was likely to widen in the subsequent quarters.

“We must look at the figure at the end of the year where the CAD stands,” Chidambaram said while reacting on the RBI data.

He said the market was too pessimistic and had over-reacted on the current account data.

“Markets have been over reacting as we have seen in the case of prediction for CAD last year which were much higher than 5 percent and we have seen that it is much lower than 5 percent,” he said.

For the fourth quarter of 2012-13, the current account deficit was $18.1 billion, or 3.6 percent of GDP, sharply lower than the $21.7 billion deficit recorded during corresponding quarter in the previous year.

Better than expected fourth quarter numbers gave some support to the battered rupee, which slumped to a record low of 60.76 against a dollar Wednesday.

The rupee rebounded to 60.17 against a dollar after the RBI data was released. It touched a low of 60.62 in the intra-day.

In its Financial Stability Report, the RBI said financing the current account deficit would be a challenge.

“There is a risk that the capital flows could reverse on a large scale if the risk-off sentiment intensifies causing increased volatility in the Indian markets,” the RBI said.

The data for fourth quarter was better than expected in the fourth quarter of 2012-13, essentially due to decline in imports of non-oil and non-gold products.

Merchandise imports declined by one percent in the fourth quarter, while exports increased by 5.9 percent, leading to lower trade deficit.

Trade deficit narrowed to $45.6 billion in January-March quarter as compared to $51.6 billion recorded in the corresponding quarter of previous year.

The net inflows under financial account during 2012-13 rose to $85.4 billion from $80.7 billion during the preceding year, mainly on account of higher inflows under FII, non-resident deposits and short term credits and advances, the RBI said.

“The increase in capital inflows led to an accretion to foreign exchange reserves by $3.8 billion during 2012-13,” it said.

Here is the highlights of the country’s current account gap:

–CAD for 2012-13 stood at $87.8 billion, or 4.8 percent of the GDP

–It was $78.2 billion or 4.2 percent of the GDP in fiscal 2011-12

–For January-March 2013 quarter, CAD declined to 3.6 percent

–CAD had hit a record high of 6.7 percent in quarter ended Dec 31, 2012.

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