India’s current account deficit widens to a record high of 4.5 per cent of GDP
30 Jun 2012
India's current account deficit (CAD) for the fourth-quarter of 2011-12 (January-March) shot up to $21.7 billion, or 4.5 per cent of GDP, from 1.3 per cent in Q4 of the previous fiscal, reflecting the perilous state of the economy.
The Reserve Bank of India, in its preliminary data on India's balance of payments (BoP) for Q4 of fiscal 2011-12, notes that with a widening CAD and continued uncertainty in the global economic scenario and prospects for equity flows, dependence on debt flows rose considerably during 2011-12.
''As a result, external debt stock increased during 2011-12, and key vulnerability indicators like debt-GDP ratio and debt service ratio witnessed deterioration over the year,'' states an RBI report.
According to the central bank, CAD for fiscal 2011-12 rose to $78.2 billion, or 4.2 per cent of GDP, from $46 billion (2.7 per cent of GDP) in the previous financial year, ''largely reflecting higher trade deficit on account of subdued external demand and relatively inelastic imports of POL (petroleum, oil and lubricants) and gold and silver.''
The high CAD has taken a huge toll on the Indian rupee, which is one of the worst-performing emerging economy currencies. It has lost a quarter of its value since last August. The RBI has been warning the government of the dangers of continuing demand for petroleum products and gold and the impact it would have on the CAD.
The RBI notes that the stress witnessed in India's balance of payments in Q3 continued during Q4 of 2011-12 as well due to large increase in imports. While capital inflows improved reflecting significant increase in portfolio investment and non-resident deposits, they fell short of financing requirements, resulting in a drawdown of foreign exchange reserves.
