The rise in CAD to GDP ratio was partly due to slower growth in GDP and rupee depreciation, says RBI monthly bulletin

India’s Current Account Deficit (CAD) as a percentage of gross domestic product (GDP) rose to an all-time high of 5.4 per cent in the second quarter of 2012-13 on account of widening of trade deficit and slower growth in invisibles, the Reserve Bank of India (RBI) said in its monthly bulletin for March released on Monday.

The rise in CAD to GDP ratio was partly due to slower growth in GDP and rupee depreciation, the RBI report said adding that a steeper decline in exports growth (12.2 per cent year-on-year) compared with imports growth (4.8 per cent year-on-year) led to widening of trade deficit. The trade deficit widened to $48.3 billion during the quarter under review from $44.5 billion during the corresponding quarter of the previous year.

While the net services receipts registered reasonable increase, net invisibles earnings could finance only a lower proportion of trade deficit as net ‘primary and secondary’ income flows were relatively smaller.

“Consequently, the CAD worsened to $22.3 billion in the second quarter of 2012-13 as compared to $16.4 billion in the preceding quarter and $18.9 billion in the second quarter of 2011-12,” the report said.

Net capital inflows

“Although net capital inflows surged during the quarter, led by foreign direct investment (FDI) and portfolio investment, they were barely sufficient to meet the financing needs and there was a marginal drawdown of reserves by $0.2 billion during the quarter,” the report added.

As per this report, during the first-half of 2012-13, India’s Balance of Payments deteriorated as trade deficit widened and invisibles remained sluggish. On the other hand, capital flows remained lower than that in the preceding year and were just sufficient to meet the gap of current account leading to small accretion to foreign exchange reserves, it said.

Manufacturing sector

The apex bank, in another report in this bulletin, said that demand conditions in the manufacturing sector in the quarters starting October 2011 to September 2012, also weakened, as reflected in the weak new orders growth, lower level of capacity utilisation and higher ratio of finished goods (FG) inventory to sales on a year-on-year basis.

One of the main findings of this report included new orders growth (year-on-year) moderating in the recent period barring an upturn in the first quarter of 2012-13.

“Capacity utilisation level of manufacturing companies depicted a seasonal behaviour with an upturn in the third quarter coinciding with festival season and peak in the last quarter of the financial year, in line with the peaks seen in other major output indicators like real GDP and Index of Industrial Production (IIP),” the report said.

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