According to the data released by the Reserve Bank of India (RBI), the current account deficit or the different between inflow and outflow of foreign currencies, increased sharply in the first quarter of the current financial year due to “rise in imports and some decline in merchandise exports”.
The current account deficit was recorded at $16.9 billion or 4 percent of GDP in the corresponding quarter of last financial year.
“Excluding the increase in gold imports of $7.3 billion in the first quarter of 2013-14 over the corresponding quarter of the preceding year, CAD would work out to $14.5 billion, which translates into 3.2 percent of GDP,” the RBI said in a statement.
Despite the sharp jump quarter-on-quarter, the figure is better than the market expectations.
“The CAD for the first quarter 2013-14 has surprised positively by coming in below market expectations owing to higher-than-anticipated net invisibles even as the trade deficit expectedly widened to 11.3 percent of GDP,” said Bhupali Gursale, an economist at Angel Broking.
Gursale said for the whole fiscal 2013-14 the current account deficit is likely to narrow to nearly 3.8 percent of GDP from 4.8 percent recorded in 2012-13.
“The good news is that net services exports at $16.9 billion are likely to trend higher on an average in the current fiscal,” said Soumya Kanti Ghosh, chief economic adviser, Economic Research Department, State Bank of India.
“Additionally, remittances from abroad in the first quarter exceeded street expectations at $16.6 billion. Going forward, we believe CAD in the second quarter of the current fiscal may be even lower than $10 billion,” Ghosh said.
On the balance of payment basis, merchandise exports declined by 1.5 percent to $73.9 billion in the first quarter of the current fiscal as compared to $75 billion recorded in the corresponding quarter of the last fiscal.
In contrast, merchandise imports recorded an increase of 4.7 percent to $124.4 billion during the quarter under review, primarily led by a steep rise in gold imports in the first two months of the quarter.
While net foreign direct investment surged to $6.5 billion in the first quarter of 2013-14 from $3.8 billion in the corresponding quarter of the previous year, net portfolio investment registered a marginal outflow of $0.2 billion as compared with an outflow of $2.0 billion in Q1 of 2012-13, primarily led by the debt component of FII investment.
“Outflow of portfolio investment occurred essentially from the third week of May 2013 after the US Fed indicated the possible tapering of quantitative easing,” the RBI said.