StatsGuru: 7-January-2013

India begins the new year with an increasingly weak external account. As Table 1 shows, the current account deficit has steadily weakened since the pre-crisis year of 2007 — in fact, in the latest figures, it has dipped below 5 per cent of gross domestic product. As Table 2 demonstrates, this is thanks to a weakening balance of trade. Meanwhile, foreign exchange reserves, as Table 3 lays out, have not increased to match India’s greater vulnerability.

What has gone wrong, since 2007, to cause this vulnerability? Table 4 shows oil imports over the past decade. They have increased sharply in value over the past few years. The value of gold imports, too, has soared, as Table 5 lays out, though their growth in value has moderated somewhat of late.

 

Naturally, there has been an effect on India’s currency — the rupee, as Table 6 shows, has declined considerably of late; market controls at the end of last years have stemmed the free-fall for now. External debt, shown in Table 7, has also risen quickly over the past five years.(Click here for tables)

How is India financing its imports? Well, as Table 8 shows, migrant remittances continue to be an important source — though they are reportedly slowing. Most importantly, however, India continues to appeal as an investment destination. Table 9 shows that flows of foreign institutional investment and of foreign direct investment have been strong. If that changes, all bets are off. Given India’s vulnerability on the external account, it cannot allow to let foreign investors sour on the India growth story.