India's CAD at all-time high of 4.5 percent of GDP

India’s current account deficit, the difference between the country’s imports and exports, for the fourth quarter of financial year 2012 more than tripled to an all time high of 4.5 percent of gross domestic product to $21.7 billion as compared with 1.3 percent a year ago due to slower GDP growth and depreciation of the rupee, the RBI said today.

Imports soared while exports remained subdued, pushing the balance of payments into deficit from surplus a year earlier. Its balance of payments was in deficit of $5.7 billion in the first three months of 2012 compared with a surplus of $2 billion a year earlier, RBI data showed.

Meanwhile, India’s total external debt rose to $345.8 billion for the March-ended quarter, which is 20 percent of the GDP.

“The widening current account gap in 2011/12 was “largely reflecting higher trade deficit on account of subdued external demand and relatively inelastic imports of POL (petroleum, oil and lubricants) and gold and silver,” the RBI said.”

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However, the sharp fall in oil prices and lower gold demand are likely to stem weakness in the current account deficit for financial year 2012-2013.

Due to the high dependency on imported oil, the country has traditionally been facing trade deficit, where the import expenses have always been higher than export earnings.

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With export growth remaining substantially lower than imports, the trade deficit widened to $51.6 billion in Q4 of 2011-12 as compared with $ 30 billion in Q4 of 2010-11, showing a rise of 72 percent year-on year.

Despite significant improvement in the capital inflows in Q4 of 2011-12, there was a drawdown of foreign exchange reserves of $ 5.7 billion (excluding valuation) as against an increase of $ 2 billion in the corresponding quarter of 2010-11, mainly because of the deterioration in the current account, the Reserve Bank of India said in a release today.

Imports, have shown a decline in growth this quarter against the year-ago period. It grew 22.6 percent during Q4 of 2011-12 against 27.7 percent in the corresponding quarter of the preceding year.

Deregulation of interest rates for non-resident rupee deposits has helped in bringing in net financial flows which have grown to $16.5 billion in the fourth quarter against 9.1 billion in the tear-ago period.However, the risking risk aversion and deleveraging in global markets has impacted the FDI flow in India. which grew marginally to $1.4 billion in the fourth quarter.

For the full year, CAD widened to the highest ever level both in absolute terms and as a proportion of GDP to$ 78.2 billion. i.e. it was 4.2 percent of GDP in 2011-12 as compared with $46 billion during the previous year.

View the entire release here.