Current account deficit occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.
INDIA'S CURRENT ACCOUNT DEFICIT WORSENS
India's current account deficit (CAD) widened to USD21.8bn (4.5% of GDP) in January-March of 2012, from (an upward revised) USD20.2bn deficit in Oct-Dec'11. As in the previous quarters, the worsening of the CAD was led by a deterioration in the trade deficit position (USD51.5bn in Jan-Mar'12 or 10.6% of GDP, up from USD48.7bn in Oct-Dec'11), offsetting the improvement in net invisibles (USD29.8bn vs. USD28.8bn). The trade deficit widened in Jan-Mar as exports growth decelerated sharply to 3.4%yoy, while imports growth remained sufficiently firm (22.6%yoy) during the same period. Meanwhile, as usual, software services (USD16.9bn vs. USD15.8bn) and private transfers (USD16.9bn vs. USD16.2bn) were the main contributors to the strength in net invisibles.
CAPITAL ACCOUNT IMPROVES MARGINALLY
Capital account surplus improved to USD16.6bn in Jan-Mar'12, up from USD7.7bn in Oct-Dec'11, but was still insufficient to fund the relatively large current account deficit, leading to a an overall BOP deficit of USD5.7bn (as compared to USD-12.8bn in Oct-Dec'11). Foreign investment improved sharply in Jan-Mar'12 as compared to Oct-Dec'11, led by robust portfolio investment flows (USD13.9bn vs. USD1.9bn), while net FDI flows (USD1.4bn vs. USD5bn) reduced appreciably from the previous quarter. Loans (USD2.7bn vs. USD1.6bn) and banking capital (USD2bn vs. USD-5.5bn) flows also improved in Jan-Mar'12 - the latter mainly helped by robust non-resident deposit flows (USD4.7bn vs. USD3.3bn), while other capital subtracted USD3.4bn from the capital account (in Oct-Dec'11, other capital added USD4.7bn to net capital flows).
BALANCE OF PAYMENTS NOT 'BALANCED'
With the releases of the Jan-Mar'12 BOP data, we now have the FY11/12 full year estimate of the BOP position. The CAD widened to USD78.1bn (4.2% of GDP) in FY11/12, a record high in absolute terms and also as a % of GDP, from USD45.9bn in FY10/11 (2.7% of GDP), on the back of a sharp deterioration in trade deficit (USD189.8bn vs. USD130.6bn), offsetting the notable improvement in net invisibles (USD111.6bn vs. USD84.6bn). Due to the sharp deterioration in CAD, the BOP recorded a net deficit of USD12.8bn in FY11/12 (vs. a net surplus of USD13bn in FY10/11), even though the capital account surplus was higher in FY11/12 compared to FY10/11 (USD67.8bn vs. USD62bn).
INDIA'S CURRENT ACCOUNT DEFICIT WORSENS
India's current account deficit (CAD) widened to USD21.8bn (4.5% of GDP) in January-March of 2012, from (an upward revised) USD20.2bn deficit in Oct-Dec'11. As in the previous quarters, the worsening of the CAD was led by a deterioration in the trade deficit position (USD51.5bn in Jan-Mar'12 or 10.6% of GDP, up from USD48.7bn in Oct-Dec'11), offsetting the improvement in net invisibles (USD29.8bn vs. USD28.8bn). The trade deficit widened in Jan-Mar as exports growth decelerated sharply to 3.4%yoy, while imports growth remained sufficiently firm (22.6%yoy) during the same period. Meanwhile, as usual, software services (USD16.9bn vs. USD15.8bn) and private transfers (USD16.9bn vs. USD16.2bn) were the main contributors to the strength in net invisibles.
CAPITAL ACCOUNT IMPROVES MARGINALLY
Capital account surplus improved to USD16.6bn in Jan-Mar'12, up from USD7.7bn in Oct-Dec'11, but was still insufficient to fund the relatively large current account deficit, leading to a an overall BOP deficit of USD5.7bn (as compared to USD-12.8bn in Oct-Dec'11). Foreign investment improved sharply in Jan-Mar'12 as compared to Oct-Dec'11, led by robust portfolio investment flows (USD13.9bn vs. USD1.9bn), while net FDI flows (USD1.4bn vs. USD5bn) reduced appreciably from the previous quarter. Loans (USD2.7bn vs. USD1.6bn) and banking capital (USD2bn vs. USD-5.5bn) flows also improved in Jan-Mar'12 - the latter mainly helped by robust non-resident deposit flows (USD4.7bn vs. USD3.3bn), while other capital subtracted USD3.4bn from the capital account (in Oct-Dec'11, other capital added USD4.7bn to net capital flows).
BALANCE OF PAYMENTS NOT 'BALANCED'
With the releases of the Jan-Mar'12 BOP data, we now have the FY11/12 full year estimate of the BOP position. The CAD widened to USD78.1bn (4.2% of GDP) in FY11/12, a record high in absolute terms and also as a % of GDP, from USD45.9bn in FY10/11 (2.7% of GDP), on the back of a sharp deterioration in trade deficit (USD189.8bn vs. USD130.6bn), offsetting the notable improvement in net invisibles (USD111.6bn vs. USD84.6bn). Due to the sharp deterioration in CAD, the BOP recorded a net deficit of USD12.8bn in FY11/12 (vs. a net surplus of USD13bn in FY10/11), even though the capital account surplus was higher in FY11/12 compared to FY10/11 (USD67.8bn vs. USD62bn).
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