Current account deficit dips in fourth quarter

The robust growth in exports and improved net invisible surplus has resulted in India's current account deficit (CAD) declining to $5.4 billion in the quarter ended March from $12.8 billion a year ago.

The CAD, in absolute terms, rose to $44.3 billion in 2010-11 from $38.4 billion in 2009-10. However, as a percentage, it declined to 2.6 per cent of the gross domestic product (GDP) in 2010-11 from 2.8 per cent in 2009-10, according to the Reserve Bank of India (RBI) data.

The trade deficit moderated to $29.9 billion in the January-March period from $31.6 billion in the fourth quarter of 2009-10. Merchandise exports recorded growth of 47.1 per cent, while imports registered growth of 27.4 per cent in the fourth quarter of 2010-11.

The performance of the services sector also improved substantially, reflecting the trend in invisible trade. It reported 71.5 per cent growth in the fourth quarter of 2010-11, compared with the 29.5 per cent drop a year ago.
 

HEALTHY GROWTH
	Q4 FY11	Full year 2010-11
Merchandise trade balance	-29.9 (-31.5)*	-130.5 (-118.4)
Invisible net	24.5 (18.5)	86.2 (80.0)
Services	14.5 (8.1)	47.7 (35.7)
Transfers	13.8 (12.6)	53.4 (52.3)
Income	-3.8 (-2.1)	-14.9 (-8)
Current AC balance	-5.4 (-13)	-44.3 (-38.4)
*figures in bracket are for 2009-10 – quarter and full year   (figures in $ billion) Source: RBI data

The strong growth in receipts was led by travel, transportation, software, business and financial services. While net private transfer receipts remained buoyant at $13.8 billion, there was a net outflow on account of investment income, RBI said.

For 2010-11, the trade deficit widened to $130.5 billion (7.5 per cent of GDP) in 2010-11 from $118.4 billion (8.6 per cent of GDP) a year ago. Net invisibles earnings increased to $ 86.2 billion from $80.0 billion last year. Robust domestic economic activity resulted in a rise in imports, compared to exports in 2010-11, thus widening the trade deficit.

The net invisibles surplus rose to $86.2 billion in 2010-11 ($80.0 billion last year) mainly on account of a greater increase in invisibles receipts, compared to payments in absolute terms. The increase in invisibles receipts was mainly driven by services exports, which recorded growth of 37.8 per cent in 2010-11 (as against a decline of 9.6 per cent in 2009-10). Software exports to $59 billion from $49.7 billion a year ago, while non-software exports almost doubled to $40.9 billion in 2010-11 from $21 billion a year ago, RBI said.

Net capital inflows increased to $59.7 billion, owing to short-term trade credits, external commercial borrowing and banking capital. Although net capital inflows were higher, the accretion to foreign exchange reserves was marginally lower, as a larger share of increased flows was absorbed by the widened current account deficit.