Current account deficit narrows sharply to 3.6% of GDP in Q4FY2013

India's current account deficit (CAD) moderated sharply to 3.6% of GDP in Q4 of 2012-13 from a historically high level of 6.7% of GDP in Q3 of 2012-13 as trade deficit narrowed. Merchandise exports (BoP basis) increased by 5.9% in Q4 of 2012-13 as compared with 2.6% in Q4 of 2011-12, while merchandise imports recorded a marginal decline of 1.0% in Q4 of 2012-13 as against an increase of 22.6% in Q4 of 2011-12.

Essentially non-oil non-gold component of imports showed a decline, reflecting slowdown in domestic economic activity. As a result, trade deficit narrowed to US$ 45.6 billion in Q4 of 2012-13 from US$ 51.6 billion in Q4 of 2011-12.

Net invisibles, however, recorded a decline of 7.7% in Q4 of 2012-13 as compared to a growth of 27.5% in Q4 of 2011-12 because of decline in net services, transfers and income receipts.

Net capital inflows under financial account moderated in Q4 of 2012-13, largely due to slowdown in net portfolio investment and net repayment of loans by banks and corporates. However, net capital inflows were more than adequate to finance CAD, resulting in accretion of US$ 2.7 billion to the foreign exchange reserves.

Highlights of BoP during 2012-13

During 2012-13, CAD stood at US$ 87.8 billion (4.8% of GDP) as against US$ 78.2 billion (4.2% of GDP) during 2011-12. Burgeoning trade deficit along with significant decline in invisible earnings caused widening of CAD during the year.

Decline in invisible earning has essentially been because of sizeable increase of 21.2% in investment income payments, and only a modest rise in net services receipts in 2012-13.

The net inflows under financial account during 2012-13 rose to US$ 85.4 billion from US$ 80.7 billion during the preceding year mainly on account of higher inflows under FII, non-resident deposits and short term credits and advances.

The increase in capital inflows led to an accretion to foreign exchange reserves by US$ 3.8 billion during 2012-13.

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