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The widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit, said the RBI. Photo: Mint
The widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit, said the RBI. Photo: Mint

Current account deficit widens to 4-year high as gold imports revive

The current account deficit increased to $14.3 billion, or 2.4% of the GDP, in the first quarter of the current fiscal, from $0.4 billion a year ago, the RBI said

Mumbai: India’s current account deficit (CAD) soared to a four-year high of $14.3 billion, or 2.4% of gross domestic product (GDP), in the June quarter as gold imports picked up ahead of implementation of the goods and services tax (GST) starting 1 July.

In the March quarter of 2016-17, CAD was 0.6% of GDP at $3.4 billion, according to Reserve Bank of India data.

Separately, data released by the commerce ministry showed that higher oil prices boosted both merchandise exports as well as imports, which grew in double digits, at 10.3% and 21.02% respectively, in August.

Petroleum exports grew 36.6% to $3.4 billion while petroleum imports rose 14.2% to $7.7 billion as prices of the Indian basket of crude oil rose 6% to $50.6 per barrel compared with the previous month.

Ganesh Kumar Gupta, president, Federation of Indian Export Organizations, said while he is very encouraged by the current trend in exports, he is worried about future growth as exporters have stopped taking orders with little or no working capital at their disposal due to blockage of funds under GST and uncertainties looming large on refunds for the months from July to October 2017.

“The need of the hour is an in-depth sectoral analysis to pinpoint factors responsible for decline in such sectors to help all our employment-generating small and micro exporters," he added.

While gold imports also picked up by 69% to $1.9 billion in August, export of gems and jewellery items contracted 26% to $2.7 billion. However, other key export items such as engineering goods (20%), chemicals (32.4%) and pharmaceuticals (4.21%) registered positive growth.

Data from the Reserve Bank of India showed that remittances by overseas Indians, after declining for two consecutive quarters, picked up to $9 billion in the June quarter. Subdued income conditions in the Gulf region due to the downward spiral in oil prices had kept growth in remittances muted.

In the financial account, net foreign direct investment doubled to $10.2 billion in the June quarter from $5 billion in the March quarter, while portfolio investments continued to rise for the second consecutive quarter at $12 billion.

Madan Sabnavis, chief economist at Care Ratings, said the September quarter will be challenging as the trade deficit has been widening till August.

“With crude prices up, pressure will continue to mount on import bill. We need to see software and remittance receipts increase. Support from FPIs (foreign portfolio investors) would be less strong as the flow to debt segment will slow down, given that the limits are being reached," he added.

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