Mumbai / New Delhi: India’s current account deficit widened to $10.72 billion (Rs50,277 crore) in the April-June quarter from $1.04 billion in the January-March quarter, the Reserve Bank of India (RBI) said on Tuesday.
Current account deficit reflects the amount by which imports exceed exports.
The deficit is now 3.6% of gross domestic product (GDP) compared with 2.4% in the corresponding quarter last year.
RBI said the balance of payments surplus in the April-June quarter was $2.24 billion, compared with a surplus of $24.99 billion in the January-March quarter.
The merchandise trade deficit on a balance of payment basis rose sharply to $31.6 billion in April-June 2008 from $20.7 billion in the same period last year, as high oil prices boosted the value of imports.
A near doubling of crude oil prices raised import costs for South Asia’s largest economy, which relies on overseas purchases for three-quarters of its energy needs.
“The data, especially the current account deficit, is in line with our expectation with higher oil import bill during the first quarter. Our estimate shows CAD (current account deficit) will be around 3% of GDP during the current fiscal,” said Shubhada Rao, chief economist of Yes Bank Ltd. “Going forward, capital inflow may face some challenge, but it will be more than sufficient to match the CAD with a surplus of $10-15 billion during the fiscal.”
The price of the Indian basket of crude in the fiscal first quarter was pegged at $118.8 per barrel, compared with $66.4 per barrel in April-June 2007, the central bank said.
India paid an average $8 billion a month this year for oil imports, up from $5.5 billion in 2007, as crude oil costs surged to a record of more than $147 a barrel on 11 July. In India, the 35% drop in oil prices since July has been offset by the decline in the rupee.
The local currency has declined 16% this year.
Invisible receipts, which includes remittances by overseas Indians and income from software services firms, rose to $20.85 billion from $14.4 billion in April-June 2007.
“During rest of the fiscal, software service exports is likely to moderate,” said Saugata Bhattacharya, an economist with Axis Bank Ltd.
“Business services may also decline due to turbulence in the global financial market. There may be some relief on the merchandise trade deficit front as crude prices have come down substantially. However, overall deficit will worsen, putting further pressure on the rupee,” he said.
The surplus in the capital account shrank to $12.96 billion in April-June 2008, from $17.5 billion in the same period of 2007, as net portfolio investment outflow was $4.2 billion in the first quarter. In comparison, there was an inflow of $7.46 billion in April-June 2007.
Prime Minister Manmohan Singh’s economic advisory council in its latest economic outlook had forecast that the current account deficit is likely to expand to $41.5 billion, equivalent to 3.2% of GDP against 1.5% of GDP in 2007-08.
It had also said that the current account deficit would be very high as a ratio of GDP in the first and second quarters of 2008-09 and decline to the average indicated for the full year through the third and fourth quarters. In fact, the council said the current account deficit to GDP ratio may be above 4.5% in the first and second quarters of the current fiscal year.
“The expansion in the deficit is directly attributable to the doubling of crude oil prices,” the council had said in July.
Bloomberg and Asit Ranjan Mishra of Mint contributed tothis story.