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India’s current account deficit (CAD) widened a shade to $1.3 billion in January-March 2015 as against $1.2 billion in the year-ago period. The reporting period also saw the highest ever accretion of $30.1 billion to the country’s foreign exchange reserves in a single quarter.
In percentage terms, however, CAD was steady at 0.2 per cent of GDP in the reporting period.
The increase in CAD in absolute terms comes on the back of merchandise trade deficit widening to $31.7 billion in the reporting quarter as against $30.7 billion in the year-ago period.
A higher CAD weakens the domestic currency, making imports expensive but exports competitive. With India importing almost 80 per cent of its oil requirements, a weaker currency can have an inflationary impact on the economy.
For the full financial year 2014-15, CAD has tracked the trade deficit and shrank to $27.5 billion (1.3 per cent of GDP) from $32.4 billion (1.7 per cent of GDP).
“The sharp decline in net oil imports in Q4 FY15 relative to the year-ago period was insufficient to prevent a widening of the merchandise trade deficit.
The key forces behind the rise in the current account deficit on a y-o-y basis in Q4 FY15 were a fall in non-oil exports and rise in gold imports,” said Aditi Nayar, Senior Economist, ICRA.
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