CAD soars to 4-yr high of 2.4% in Q1

Business Standard - - FRONT PAGE - ANUP ROY Mum­bai, 15 Septem­ber

In­dia’s cur­rent ac­count deficit (CAD) in the first quar­ter ended June soared to a four-year high of $14.3 bil­lion, or 2.4 per cent of gross do­mes­tic prod­uct (GDP), from 0.1 per cent a year ago and 0.6 per cent in the fourth quar­ter.

The CAD, the dif­fer­ence be­tween im­ports and ex­ports, was at $0.4 bil­lion a year ago and $3.4 bil­lion in the fourth quar­ter of 2016-17.

De­spite the high CAD, strong cap­i­tal flows en­sured that the bal­ance of pay­ment sur­plus was at $11 bil­lion, a two-year high.

The rise in the CAD was on ac­count of a high trade deficit, $41.2 bil­lion, “brought about by a larger in­crease in mer­chan­dise im­ports rel­a­tive to ex­ports,” said the Re­serve Bank of In­dia (RBI).

While ex­ports have been fall­ing, a strong ru­pee is also mak­ing ex­ports un­com­pet­i­tive. On the pos­i­tive side, net for­eign di­rect in­vest­ment dou­bled to $7.2 bil­lion in the first quar­ter from the year-ago level. Net port­fo­lio in­vest­ment, too, recorded a sub­stan­tial in­flow of $12.5 bil­lion in Q1 of 2017-18, pri­mar­ily in the debt seg­ment, as com­pared to $2.1 bil­lion in the year-ago quar­ter, it said.

“The sharp surge in the cur­rent ac­count deficit in Q1 FY2018 rel­a­tive to Q1 FY2017 comes as no sur­prise, with the spike in gold im­ports prior to the in­tro­duc­tion of GST re­spon­si­ble for half of this uptick,” said Aditi Na­yar, prin­ci­pal econ­o­mist at ICRA Ltd. “More­over, the lagged im­pact of the INR ap­pre­ci­a­tion was partly re­spon­si­ble for a faster rise in non-oil, non-gold im­ports rel­a­tive to ex­ports, bloat­ing the size of the mer­chan­dise trade deficit.”

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