India’s Current Account Deficit touches all time high

With soaring imports, economic slowdown and moderate export growth, India’s current account deficit (CAD) more than tripled to 4.5% of GDP at $78.2 billion in January-March period of 2011-12, posting highest in at least 30 years in the March quarter.

The current account deficit surged to $21.7 billion (4.5% of GDP), compared with $6.3 billion (1.3% of GDP) for the corresponding quarter in the previous year. It was also more than the October-December period's $19.6 billion, the previous record. The current account includes the trade balance, payments for software exports and worker remittances.

With export growth lagging import growth, the trade deficit for January-March 2012 widened to $51.6 billion from $30 billion in the same quarter last year. Growth in net services exports in the fourth quarter decelerated to 21.1% from 72% in the fourth quarter of 2010-11, while Imports swelled 22.6%, compared with 27.7%.

Despite the slowdown in economic activity and rupee depreciation, growth in merchandise imports moderated only mildly from 27.7% in Q4 of 2010-11 to 22.6% in Q4 of 2011-12.

The net capital and financial account surplus rose to $16.5 billion from $9.1 billion a year earlier. The RBI drew down its reserves by $5.7 billion during the January-March period, compared with an addition of $2 billion a year earlier.