CAD in Q1 at 3.9% of GDP

India’s current account deficit (CAD) for the first quarter ended June declined to $16.4 billion from $17.4 billion in April-June 2011, on moderation in trade deficit and rise in remittances from foreign Indians.

However, as a proportion of gross domestic product (GDP), it rose marginally to 3.9 per cent for Q1 of FY13 from 3.8 per cent for Q1 of 2011-12. This reflects moderation in economic growth and rupee depreciation of about 17 per cent against the dollar over the corresponding quarter, RBI said in a statement.

The CAD for Q4 ended March 2012 was 4.5 per cent. The balance of payments situation improved, albeit on a small scale, after two quarters. There was net accretion to foreign exchange reserves of $0.5 billion in Q1 of FY13 compared with drawdown of $5.7 billion in Q4 of FY12. In Q3 (December 2011), it was to the tune of $12.8 billion.

D K Joshi, chief economist with CRISIL, said CAD would come down in months with a sharp dip in imports, as industrial activity is near a standstill. Soft crude oil prices will help.

The Prime Minister’s Economic Advisory Council has estimated CAD to be about 3.6 per cent for 2012-13. It was 4.2 per cent for FY12.

The Reserve Bank of India (RBI) said the merchandise trade deficit was $42.5 billion during Q1 of FY13 against $44.9 billion in April-June 2011.

Gold and silver imports declined sharply by 47.5 per cent in Q1 in contrast to a growth of 123.1 per cent same period last year. Oil imports also declined in Q1, but only marginally (0.1 per cent) on softening of oil prices. Oil imports had surged 52.5 per cent in April-June 2011.

The decline in non-oil non-gold imports largely reflects slowdown in economic activity. The sharp dip in precious metal imports seems to have been caused by measures to discourage such imports, including increase in custom duty, RBI added.

Net secondary income, predominantly consisting of remittances by Indians working abroad, remained buoyant at $16.8 billion, up from $ 14.8 billion in April-June 2011.

RBI has said with lower economic growth, the sustainable level of CAD is 2.5 per cent of GDP. The CAD is likely to stay above this.