5845

Is the current account deficit smaller than believed?

A report by Bank of America Merrill Lynch points to an important discrepancy in data on oil imports
Comment E-mail Print Share
First Published: Wed, Jan 16 2013. 11 13 AM IST
The latest official data pegs the current account deficit at $22.3 billion in the September quarter, or a record 5.4% of gross domestic product. Photo: Priyanka Parashar/Mint
The latest official data pegs the current account deficit at $22.3 billion in the September quarter, or a record 5.4% of gross domestic product. Photo: Priyanka Parashar/Mint
Updated: Wed, Jan 16 2013. 11 57 AM IST
How large is India’s current account deficit?
The answer matters because any country needs adequate inflows of foreign capital to fund the external gap if it is to avoid a collapse in the international value of its currency and perhaps even a default on its debt obligations.
The latest official data pegs the current account deficit at $22.3 billion in the September quarter, or a record 5.4% of gross domestic product. It is a sign that the Indian economy could be particularly vulnerable if another global shock disrupts global capital flows.
One common criticism of the official estimate is that India includes gold in its current account. Some say it should actually be part of the capital account, since gold is a capital asset. The exclusion of gold would bring the current account deficit to a less scary level.
A recent research report by brokerage Bank of America Merrill Lynch identifies another problem with the data.
The report points to an important discrepancy in the data on oil imports. The petroleum ministry says that the oil import bill in the April-October period was $86.3 billion, while the commerce ministry believes we imported oil worth $95.6 billion in the same period.
Bank of America Merrill Lynch finds the petroleum ministry data more consistent with two facts—oil import volumes have gone up by only 3.4% since April and global oil prices have fallen by 4.7% in the same period.
What would the effect on the current account deficit be in case we consider petroleum ministry data rather than commerce ministry numbers?
India’s current account deficit would be lower by around 0.5 percentage points of GDP.
That is the bottomline.
Comment E-mail Print Share
First Published: Wed, Jan 16 2013. 11 13 AM IST
blog comments powered by Disqus
  • Wed, Apr 23 2014. 05 42 PM
  • Wed, Apr 16 2014. 06 11 PM
ALSO READ close

The political economy cycle in India

Subscribe |  Contact Us  |  mint Code  |  Privacy policy  |  Terms of Use  |  Advertising  |  Mint Apps  |  About HT Media  |  Jobs
Contact Us
Copyright © 2014 HT Media All Rights Reserved