Debt capital help finance CAD
EDon’t limit a child to your own learning, for he was born in another time. — Rabindranath Tagore ven as India’s current account deficit (CAD) at $8.2 billion (1.6 per cent of GDP) in Q2 of 2015-16 was lower than $10.9 billion (2.2 per cent of GDP) in this quarter a year ago, it was higher than $6.1 billion (1.2 per cent of GDP) in the preceding quarter, and a recent low of $0.6 billion two quarters back.CAD reflects an equivalent amount of foreign capital to supplement domestic savings to finance domestic capital formation, i.e.projects investment. The contraction in CAD on a y-o-y basis was primarily on account of lower trade deficit of $37.4 billion as compared with $39.7 billion in Q2 of last year though it was higher than the level in the preceding quarter ($34.2 billion). Half of merchandise trade deficit for Q2 was made good by surplus of $18 billion in trade in services. Whereas primary income, mainly dividend & profit repatriation by foreign companies in India resulted in a drain of $5 billion, the stable and strong inward remittances by Indian workers working abroad brought in $16 billion. By the way, total export of goods and services was around $106 billion and total import cost the country $125 billion. In Merchandise import of $105 billion (-14 per cent) over the quarter, POL import was $23.5 billion (-44 per cent) and nonmonetary gold $10 billion (+30 per cent).
Capital flows brought in a net $9.1 billion, resulting in a net addition of $0.9 billion to forex reserves on BoP account. Banking capital brought in $7.3 billion, including $4.2 billion in NRI deposits. Portfolio investment resulted in a drain of $6.4 billion and
Trends in H1 the total for the XII Plan period to around ` 1.10 lakh crore (see table). Apart from capital work in progress of around ` 40,000 crore, projects worth ` 13,465 crore have been awarded, in projects aggregating ` 23,301 crore, bids have been opened while in projects worth ` 9,034 crore, tenders have been invited.
The highlight of Q3 of FY16 was the rate of capitalization of capex, which means the conversion of work in progress into operational assets. In the said period, ` 17,207 crore of capex was capitalized. This has been the highest in any quarter so far, noted Jha. In the first nine months of FY16, a total of ` 26,802 crore worth of projects were capitalized. The highest-ever level of projects capitalized in any year so far has not exceeded ` 22,000 crore. The current fiscal year, therefore, has been unprecedented on this count.