India’s current account deficit (CAD) eased to 3.6 per cent of GDPmp in Q4 of the fiscal 2013, from a frighteningly and historically high level of 6.7 per cent in Q3, as trade deficit narrowed from $58.4 billion to $45.6 billion. Merchandise exports (BoP basis) increased by 5.9 per cent on a y-o-y basis, whereas merchandise imports recorded a marginal decline.

Net invisibles, however, recorded a decline of 7.7 per cent during the quarter, as compared to a growth of 27.5 per cent in Q4 a year ago, on account of decline in net services, transfers and income receipts.

Net capital inflows under capital and financial account moderated in Q4, largely due to slowdown in portfolio investment and net repayment of loans by banks and corporates. However, net capital inflows were more than adequate to finance CAD, resulting in accretion of $2.7 billion to the foreign exchange reserves over the quarter.

BALANCE OF PAYMENTS ($ BILLION)
 
2012-13
2011-12
Trade in Goods
-195.7
-189.7
Trade in services
64.9
64.0
Net trade in Goods & Services
-130.8
-125.7
Other income
42.9
47.5
Current Account Balance
-87.8
-78.2
Capital Account
-0.3
-0.1
Financial Account
85.4
80.7
Foreign Investment
38.7
37.6
Foreign Direct Investment
19.8
22.1
Portfolio Investment
26.7
16.6
NRI deposits
14.8
11.9
External Commercial Borrowings
8.5
10.3
External Assistance
1
2.3
Trade credit, receivables, etc
19
0.2
Errors & Omissions
2.7
-2.4
Change in reserves on BoP account (or, reserve assets)
3.8
-12.8
Valuation effects
-6.2
2.4
Change in reserves
-2.4
-10.4
Note: Data may not add up due to rounding off.

Fiscal 2013
Notwithstanding an improved performance in Q4, trade deficit during the fiscal remained at an elevated level of $195.7 billion (+3 per cent). Commodity-wise disaggregated figures based on DGCI&S data reveal that exports of manufactured items like engineering goods, textiles, gems and jewellery and also primary products like iron ore and minerals declined during the year. POL and gold continued to constitute nearly 45 per cent of total merchandise; but whereas POL import rose by 9.3 per cent, gold import declined by 4.8 per cent during the year. Net service receipts amounted to $64.9 billion ($64.0 billion). While net receipts under travel, transport, software services, financial services, communication services increased, net receipts of insurance, business services recorded a decline during the year. Primary income, comprising mainly of compensation of employees, investment income and other primary receipts, declined considerably by $21.5 billion ($$16 billion) on account of larger outflow under investment income. Net secondary income receipts, primarily comprising private transfers, increased by 1.4 per cent to $64.4 billion, a much smaller rate compared with 19.5 per cent rise in the fiscal 2012.

Thus, burgeoning trade deficit on the one hand, and a modest rise in net services receipts along with a decline in primary and secondary income on the other led to widening of CAD to $87.8 billion, which works out to 4.8 per cent of GDPmp as compared with 4.2 per cent in the fiscal 2012 and 2.7 per cent two years back. The country’s net overseas purchase of foreign goods and services was still higher at around 7.1 per cent of GDPmp, against 6.7 per cent in the fiscal 2012 and 4.7 per cent two years back. The ratio, which mirrors domestic demand-supply imbalance, assumes significance, given the phenomenon of a slowing economy.

Capital & Financial Account
The higher CAD was adequately financed by capital flows, mainly trade credit, receivables etc which brought in $19 billion, against only $0.2 billion during the fiscal 2012.

While net foreign direct investment moderated to $19.8 billion ($22.1 billion), net portfolio investment increased $10 billion to $26.7 billion. NRI deposits yielded $14.8 billion ($11.9 billion); and ECB $8.5 billion ($10.3 billion). FDI into the country was $27 billion ($33 billion) and FDI overseas by Indian citizens $7.1 billion ($10.9 billion).

The country’s forex reserves on BoP account increased $3.8 billion, against a $12.8 billion drawdown in the fiscal 2012. However, valuation losses reflecting the appreciation of USD against major currencies on stock of the country’s forex currency reserves were assessed at $6.2 billion during 2012-13, which resulted in a decline of $2.4 billion in forex reserves.

External debt
The country’s external debt was placed at $390 billion, against $345 billion a year ago and $224 billion five years ago. The share of government debt in external debt was around 20 per cent, external commercial borrowing 31 per cent and NRI deposits 18 per cent. Short term debt comprised 25 per cent and long term 75 per cent. The stock of external debt to GDPmp worked out to 21.2 per cent, against 19.7 per cent at the end of fiscal 2012 and 18 per cent five years back.


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