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India’s CAD moderated sharply to 3.6% of GDP in Q4 2012-13

India’s current account deficit (CAD) moderated sharply to 3.6% of GDP in Q4 of 2012-13 as compared to 6.7% of GDP in Q3 of 2012-13 as trade deficit narrowed. On BoP basis, India’s merchandise exports increased by 5.9% to US$ 84.8 billion in Q4 of 2012-13 as compared to 2.6% in Q4 of 2011-12. Pickup in exports could be attributed to better performance of products like tea, leather and manufactures, plastic and linoleum products, machinery and equipments, cotton yarn fabrics and carpets. Merchandise imports witnessed a marginal decline of 1% at US$ 130.4 billion in Q4 of 2012-13 as against a growth of 22.6% in Q4 of 2011-12, resulting mainly from a decline in non-oil non-gold imports partly reflecting a slowdown in domestic activity. Trade deficit narrowed down to US$ 45.6 billion in Q4 of 2012-13 amounting to 9% of GDP.

Major items of India ’s Balance of payments                                                           (US$bn)
Source: RBI, Note: P: Preliminary; PR: Partially Revised *: Estimated
1. Changes in Reserve Assets are included under the Financial Account as recommended by the BPM 6.
2 Total of subcomponents may not tally with aggregate due to rounding off.


Services and income flows--Services exports increased by 0.4% to US$ 37.8 billion in Q4 of 2012-13 as compared to an increase of 6.8 % during the same quarter in the preceding year. Moderation in exports was mainly led by a decline in other business services like research and development, professional and management consulting, technical and trade related services. Import of services grew at a faster rate of 4.2% at US$ 20.9 billion in Q4 of 2012-13 as against a decline of 4.1% in Q4 of 2011-12 on account of higher payments towards construction, telecommunication and other business services. Overall, net service receipts recorded a decline of 3.9% in Q4 of 2012-13 over the corresponding quarter of 2011-12.

There was a net outflow on account of primary income amounting to US$ 5.2 billion in Q4 of 2012-13 as compared to an outflow of US$ 4.6 billion in Q4 of 2011-12 led by a decline in net investment income receipts. While investment income receipts declined by 4.5% (decline of 16.6% in Q4 of 2011-12), investment income payments grew by 12.1% in Q4 of 2012-13 (decline of 4.8% in Q4 of 2011-12)
Secondary income witnessed a moderation in net inflows to US$ 15.8 billion in Q4 of 2012-13 from US$ 16.9 billion in the corresponding period of 2011-12, reflecting a fall in net remittances from overseas Indians.

Disaggregated items of Current Account (Net)                                                                   (US$bn)
Source: RBI, Note: P: Preliminary; PR: Partially Revised , Total of subcomponents may not
tally with aggregate due to rounding off.

The burgeoning trade deficit along with significant decline in invisible earnings caused widening of CAD during the year. 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. Decline in invisible earning has essentially been on account 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.

Warm regards,

Dr. S P Sharma
Chief Economist

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