Reflecting fast losing external competitiveness, the country’s current account deficit shot up to $32.6 billion during October-December, from $22.6 billion during July-September, $16.4 billion during April-June and $20.2 billion in the same period of 2011-12. The ratio of CAD to GDPmp worked out to 6.7 per cent during Q3, against 5.4 per cent in Q2 and around 4.3 cent a year ago.

What is worrying, service and other current receipts widened the merchandise deficit, unlike what has usually happened. Merchandise deficit shot up by $10 billion annually to $59.6 billion due to stagnating exports, while net service receipt rose much less by around $1.5 billion to $17.6 billion. Telecommunications, computer and information service exports yielded only marginally more at $16 billion ($15.8 billion), and travel and tourism brought a net $2 billion ($1.5 billion).

Primary income, mainly dividend and profit repatriation, caused a larger drain of $6.3 billion ($3.8 billion) and workers’ remittances etc., the country’s dependable earning source in the external sector, netted a lower $14.8 billion ($15.6 billion).

No doubt, the higher CAD was financed by enhanced capital inflow leading to a marginal increase in forex reserves (on BoP basis), against a drawdown by nearly $13 billion in Q3 of 2011-12; the quality of capital flows was not conducive.

Longer term non-debt FDI yielded a lower $2.5 billion ($5 billion), whereas fickle FII investment brought much more ($8.6 billion, against $1.8 billion). Debt finance comprising ECB, trade credit and NRI deposits also brought larger amount.

($ Billion)
2012-13 2011-12
Trade Balance
Net Services
Primary Income (Net)
Secondary Income (Net)
Current Account Balance
Capital and Financial Account (including E&O but excluding forex reserves)
Direct Investment (Net)
Portfolio Investment
NRI Deposits
Banking Capital
Short-term Trade Credit etc
Other Receivables, Payables, Capital Account etc
External Assistance
Valuation Change
Change in Reserves

Trends in April-December
Merchandise deficit escalated by $12 billion to $150.3 billion during the first three quarters of 2012-13 due to lower export and muted growth in import. Gold import under merchandise trade was $37.8 billion; even though it was 10 per cent lower annually. According to DGCIS data, engineering goods and petroleum products showed 5-5.5 per cent decline in export. Whereas non-crude oil import was 12 per cent more, non-oil import showed 6 per cent drop during April-December.

Among other current account transactions, telecom, computer, and information service income increased from $44 billion to $47 billion. Income from foreign tourists in India declined from $13 billion to $12.5 billion, whereas the spending by Indian tourists going abroad dropped to $9.1 billion ($10.5 billion). Secondary income, mainly personal transfers, which include workers remittances and other current transfers between resident and non-resident households got $48.6 billion ($46.6 billion). Causing concerns about the sustainability, current account deficit, broadly net import of foreign capital to supplement domestic saving to finance capital formation was placed at $71.7 billion (56.5 billion, and its ratio to GDPmp shot up to 5.4 per cent from 4.1 per cent in the corresponding period of 2011-12. Invisibles comprising services and secondary incomes seem to have reached a plateau, whereas dividend and profit repatriations could be on the rise. This would constrain meeting any sharp deterioration in merchandise deficit by invisibles resulting in likelihood of it percolating to current account deficit.

Capital inflows after taking into account errors & omissions were placed at $72.8 billon ($49.2 billion). FDI on net basis was assessed at $ 15.3 billion ($20.7 billion). FDI into the country was $21.1 billion ($28.7 billion) and overseas $5.8 billion ($8 billion). Fickle minded portfolio investment was $14.6 billion ($3.2 billion). In debt, external commercial borrowing amounted to $4.5 billion ($8.1 billion), NRI deposits $12 billion ($7.3 billion), trade credit etc $15.7 billion ($6.5 billion) and banking capital (other than NRI deposits) $ 8.2 billion ($6.9 billion). The capital account, which reflects official transfers for non-financial assets, migrant transfers etc. were negligible.

Forex assets of RBI mirroring net result of currant and capital account transactions in BoP increased by $1.1 billion, against $7.1 billion drawdown in this period of 2011-12. The increase reflects investment abroad of forex reserves and capital outflow in BoP parlance, whereas the decline mirrors use of forex reserves, which is treated as capital inflow.

External debt
The country’s external debt was placed at $376 billion at the end of December, showing $30 billion rise over the debt in March last. Forex reserves provided a cover of 79 per cent to the total external debt stock at the end of 2012 vis-à-vis 85 per cent at end-March 2012.

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