CAD may have touched 5% of GDP in Q1

Reflecting global demand conditions, exports in Q1 contracted by 1.4 per cent

Shrinking exports and high gold imports might have pushed India’s current account deficit for the financial year’s first quarter, April-June, to about five per cent of gross domestic product (GDP) as against 3.9 per cent in April-June 2012.

There might also have been some drawdown from the foreign exchange reserves. In April-June 2012, there was a net accretion to forex reserves of $500 million. Aditi Nayar, senior economist, ICRA, said: “We expect a degeneration in CAD of around $23 billion for the first quarter.”  The CAD in Q1 of 2012-13 was $16.4 bn (3.9 per cent). For January–March 2013, it had moderated to 3.6 per cent of GDP ($18.1 bn) from 6.5 per cent ($30.8 bn) in October-December 2012.

The trade deficit continued to be a concern in Q1 of 2013-14. It widened from $42.2 bn in Q1 of 2012-13 to $50.2 bn in the FY14 quarter, mainly on account of a sharp increase in gold import. These almost doubled from $9.2 bn in Q1 of 2012-13 to $17.9 bn in Q1 of 2013-14.

Reflecting global demand conditions, exports contracted in Q1 of 2013-14 by 1.4 per cent, as against a decline of four per cent in Q1 of 2012-13. Imports grew six per cent in Q1 of 2013-14 as against a decline of 5.7 per cent in Q1 of 2012-13, according to RBI data.

Saumya Kanti Ghosh, chief economic advisor, State Bank of India, said: “We do not read much negative into the expected Q1 current account deficit. The numbers for the second quarter will be much better.”

To curb the trade deficit, especially due to gold import, the government put curbs on import of the yellow metal, beside a rise in tariffs. It expects the overall CAD for FY14 to be controlled below $70 bn (about four per cent of GDP).