India’s current account deficit (CAD) – a measure of the country’s external vulnerability – widened to $10.1 billion in the second quarter of 2014-15 from $7.8 billion in the preceding quarter.
The CAD rose to 2.1 per cent of the GDP in the second quarter against 1.7 per cent in Q1.
The RBI said that the increase in CAD was primarily on account of the higher trade deficit contributed by both a deceleration in export growth and increase in imports.
In the second quarter of the previous financial year, the CAD was at $5.2 billion (1.2 per cent of GDP). In the first six months of the current fiscal, the country’s current account deficit aggregated $17.9 billion ($26.9 billion in the corresponding year ago period).
Finance Minister Arun Jaitley in his Budget speech in July had said, “We must continue to be watchful on the CAD.”
About six quarters ago, a burgeoning CAD was the biggest headache for the country’s policymakers. The RBI and the government tried hard to curb it as the rising print threatened to affect the country’s sovereign ratings.
The RBI had put severe restrictions on gold imports to rein in the galloping CAD. It, however, has done away with those curbs as the situation has improved. However, the latest reading will attract the attention of policymakers and economists as it comes at a time when Brent crude prices have plummeted and forex inflows have improved.
According to Aditi Nayar, Senior Economist, ICRA Ltd, the average monthly trade deficit is expected to narrow from $13.8 billion in September-October 2014 to $10-12 billion per month in the remainder of FY15, reflecting the easing of commodity prices. “We expect a current account deficit of about $35 billion or about 1.7 per cent of GDP in 2014-15, which would be comfortably financed by capital inflows,” she said.