CAD narrows to 1.2 per cent of GDP in Q2 FY14

For the July - September 2013 quarter, the Balance of Payments (BOP) position was negative at USD 10.35 billion. India's current account deficit (CAD) narrowed sharply to US$ 5.2 billion (1.2 per cent of GDP) in Q2 of 2013-14 from US$ 21.0 billion (5.0 per cent of GDP in Q2 of 2012-13), also much lower than 4.9 per cent of GDP in Q1 of 2013-14. The lower CAD was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports.

On a BoP basis, merchandise exports increased by 11.9 per cent to US$ 81.2 billion in Q2 of 2013-14 on the back of significant growth especially in the exports of 'textile and textile products', 'leather & leather products' and chemicals.

On the other hand, merchandise imports at US$ 114.5 billion, recorded a decline of 4.8 per cent in Q2 of 2013-14 as compared with a decline of 3.0 per cent in Q2 of 2012-13, primarily led by a steep decline in gold imports, which amounted to US$ 3.9 billion as compared to US$ 16.4 billion in Q1 of 2013-14 and US$ 11.1 billion in Q2 of 2012-13.

As a result, the merchandise trade deficit (BoP basis) contracted to US$ 33.3 billion in Q2 of 2013-14 from US$ 47.8 billion a year ago.

Net invisibles during Q2 of 2013-14 improved, essentially reflecting a rise in net services exports. Net services at US$ 18.4 billion recorded a growth of 12.5 per cent in Q2 of 2013-14 (y-o-y) mainly on account of 'computer services'.

Net outflow on account of primary income (profit, dividend and interest) amounting to US$ 6.3 billion in Q2 of 2013-14 was higher than that in the preceding quarter (US$ 4.8 billion) as well as the corresponding quarter (US$ 5.6 billion) of 2012-13. Gross transfers receipts at US$ 17.3 billion showed an increase of 2.6 per cent (y-o-y).

While foreign direct investment recorded net inflows of US$ 6.9 billion in Q2 of 2013-14, net portfolio investment registered an outflow of US$ 6.6 billion in the wake of indication given by US Federal Reserve about the tapering of its quantitative easing programme. There was a marginal net outflow of US$ 0.8 billion under equities while the debt component of net FII flows recorded a higher outflow of US$ 5.7 billion.

'Loans'(net) availed by deposit taking corporations (commercial banks) witnessed an outflow of US$ 6.7 billion in Q2 of 2013-14 owing to repayments of overseas borrowings and a build-up of their overseas foreign currency assets. Under 'currency & deposits', net inflows of NRI deposits amounted to US$ 8.3 billion in Q2 of 2013-14 as compared to US$ 2.8 billion in the corresponding quarter of 2012-13. Loans (net) availed by others (ECBs) at US$1.3 billion, however, showed an increase of 8.8 per cent over the same quarter of the preceding year. Trade credits and advances recorded a decline mainly on account of higher repayments.

On a BoP basis, there was a drawdown of foreign exchange reserves of US$ 10.4 billion in Q2 of 2013-14 as compared to that of US$ 0.2 billion in Q2 of 2012-13.

Developments in India's BoP during April-September 2013

The turnaround in export growth and decline in imports from July 2013 onwards led to a sharp improvement in the trade deficit to US$ 83.8 billion in H1 of 2013-14 from US$ 91.6 billion in H1 of 2012-13.

Contraction in the trade deficit coupled with a rise in net invisibles receipts resulted in a reduction of the CAD to US$ 26.9 billion (3.1 per cent of GDP) in H1 of 2013-14 from US$ 37.9 billion (4.5 per cent of GDP) in H1 of 2012-13.

Net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to US$ 15.1 billion in H1 of 2013-14 from US$ 37.0 billion in H1 of 2012-13 owing to net outflows of portfolio investment.

Notwithstanding a lower CAD during H1 of 2013-14, there was a drawdown of foreign exchange reserve to the tune of US$ 10.7 billion as against an accretion of US$ 0.4 billion in H1 of 2012-13 mainly due to a decline in net capital inflows under the financial account.

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