India’s current account deficit was assessed at $21.8 billion during Q1 of the ongoing fiscal, rising from $18.1 billion in the preceding quarter and $16.9 billion in Q1 of 2012-13. The current account shortfall was, however, much lower than $31.9 billion in Q3 of 2012-13 that had raised concerns on the sustainability of CAD. The amount, broadly net import of foreign capital, constituted 4.9 per cent of GDP at market prices, against 4 per cent in this quarter a year ago, but much less than 6.5 per cent in the recent years’ peak during Q3. The country was deficient in merchandise to the tune of $50.5 billion ($43.8 billion), which could not be made good despite $16.9 billion ($15 billion) net receipt from services and $16.7 billion ($16.8 billion) in the form of secondary income, mainly workers’ remittance. Primary income (investment income and salaries and wages etc.) saw net outflow of $4.8 billion ($4.9 billion).

In merchandise trade, export receipt was marginally lower, whereas import payment was around 4 per cent higher annually. POL caused a drain of $28.1 billion, even after taking credit of $13.9 billion from petroleum product export. Gold import stood at $16.5 billion, up $7.3 billion. Bulk of the increase occurred during April-May, according to reports. Net yield from services expanded 12 per cent annually.

While service export expanded 2 per cent, their import, mainly under professional and management consultancy head, declined 5 per cent. Telecom, computer and information service export increased from $15.2 billion to $16.2 billion; other business income brought in $0.567 billion (outflow of $0.593 billion), thanks to $1.198 billion receipt from professional and management consultancy services. Travel and tourism yielded $0.826 billion ($0.405 billion) after netting out $2.999 billion ($3.101 billion) spent by Indian tourists on foreign tours.

Investment income saw a net outgo of $5.12 billion, after netting $1.56 billion the country earned from its overseas investment, including $0.729 billion earned on forex assets deployment by RBI. With $16.213 billion inflow, personal transfers, mainly workers’ remittances, lent a solid support in containing CAD, even as the source seems to have stagnated at $15-16 billion a quarter in recent years.

The country’s CAD was largely financed by capital inflows, with forex reserves on BoP account showing relatively only a nominal decline of $0.3 billion. Following USD appreciation (and rupee depreciation) valuation losses on stock of forex reserves were assessed at $9.2 billion ($5.2 billion), which saw the forex reserves go down by $9.6 billion ($4.7 billion).


($ Billion)
Trade Balance -50.50 -43.80
Net Services 16.90 15.00
Primary Income, Net -4.80 -4.90
Secondary Income, Net 16.70 16.80
Current Account Balance -21.80 -16.90
Capital and Financial Account (including E&O and forex reserves) 21.80 16.90
Of which, Direct Investment (net) 6.49 3.82
Portfolio Investment -0.24 -2.02
NRI Deposits 5.50 6.55
ECB 0.42 0.40
      Banking Capital 4.67 2.97
       External Assistance 0.29 0.05
Short-term Suppliers’ Credit etc 2.45 5.38
Valuation Change -9.20 -5.20
Change in Reserves -9.60 -4.70

In capital flows, capital account transactions comprising acquisition of intangible assets like trade marks and official transfers etc. resulted in an inflow of $0.767 billion (outflow of $0.218 billion). In financial account transactions, while net foreign direct investment surged to $6.5 billion from $3.8 billion in Q1 of 2012-13, net portfolio investment registered a marginal outflow of $0.2 billion as compared with an outflow of $2.0 billion in Q1 a year ago. The decline in portfolio investment during the quarter was primarily in debt component of FII investment, which fell $5.3 billion essentially from the third week of May 2013 after the US Fed indicated the possible tapering of quantitative easing.

In a major break from recent years, overseas investment by Indians including in debt instruments saw a marginal decline (investment of $2.09 billion). Net overseas borrowing by banks increased 57.5 per cent to $4.78 billion. Net external commercial borrowings at $0.4 billion remained at the same level. Higher repayments of trade credit moderated net inflows under ‘trade credit & advances’ to $2.5 billion ($5.4 billion).

External debt
The country’s external debt was placed at $388 billion at the end of Q1 (+11 per cent). Commercial borrowing was estimated to be $144 billion, government borrowing $76 billion, NRI deposits $71 billion and short-term debt $97 billion, of which trade credit was $89 billion.

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