CAD snippets

India's current account deficit (CAD) widened to $7.8 billion (1.7% of GDP) during the first quarter of FY15 from $1.2 billion (0.2% of GDP) in Q4 of 2013-14. The CAD was, however, sharply lower than the $21.8 billion (4.8% of GDP) in the corresponding quarter last year which had triggered a sharp fall in the rupee. The positive news is that on a balance of payment basis, there was a net accretion of $11.2 billion to India’s foreign exchange reserves in Q1 of 2014-15. This is the third straight quarter that the country has had a positive BoP position. In June last year, the BoP was in a deficit of $300 million The accretion to reserves are a reflection of capital flows due to investment by foreign portfolio investors.
The deficit widened as imports rose $114 billion from $116 billion while exports fell from $83 billion to $81 billion as the rupee strengthened. One of the reasons for the widening deficit was the increase in net gold imports from $5.3 billion in the last quarter of FY14 to $7 billion in the first quarter of the current fiscal. There was also a slight moderation in IT exports with revenue from export of computer services falling to $17 billion from $17.7 billion in the earlier quarter.
Despite the deterioration the current account deficit continues to be within the Reserve Bank of India’s comfort zone. Also the widening is entirely due to non-oil imports which are also seen to be a sign of economic revival.