The Reserve Bank of India (RBI), on Friday, said that Current Account Deficit (CAD) rose to $78.2 billion (4.2 per cent of gross domestic product (GDP)) in 2011-12 from $ 46 billion (2.7 per cent of GDP) in 2010-11, “largely reflecting higher trade deficit on account of subdued external demand and relatively inelastic imports of POL and gold and silver”.
During 2011-12, while growth in exports decelerated sharply to 23.6 per cent (37.5 per cent in 2010-11), imports grew by 31.1 per cent (26.7 per cent).
Imports of oil, up 46.9 per cent, and precious metals, up 49.4 per cent, together contributed nearly 45 per cent of total imports during the year. Notably, international price of the Indian basket of crude oil increased from $85.1 in 2010-11 to $111.9 a barrel in 2011-12. “Consequently, the trade deficit widened to $189.7 billion in 2011-12 from $130.4 billion in 2010-11.”
It also said that foreign exchange reserves declined by $12.8 billion for the year ended March 31, 2012, against an increase of $13.1 billion during the previous year.
Foreign exchange reserves (including the valuation effects) declined by $10.4 billion during 2011-12 as against an increase of $25.8 billion, said the RBI.
The valuation gain, reflecting the depreciation of the U.S. dollar against major currencies, accounted for $2.4 billion during 2011-12 compared with $12.7 billion in 2010-11.
“The stress witnessed in India’s Balance of Payments (BoP) in the third quarter continued during the fourth quarter of 2011-12 as well due to large increase in imports,” the RBI said.
“While capital inflows improved, reflecting significant increase in portfolio investment and non-resident deposits, they fell short of financing requirements, resulting in a drawdown of foreign exchange reserves. The trade deficit during the fourth quarter exceeded $50 billion (10.6 per cent of GDP) and Current Account Deficit rose to $21.7 billion (4.5 per cent of GDP). This was $6.3 billion in the fourth quarter of 2010-11 (1.3 per cent of GDP).
On the Balance of Payments basis, growth in merchandise exports (year-on-year) decelerated sharply to 3.4 per cent during the fourth quarter of 2011-12 from 46.9 per cent during the corresponding quarter of 2010-11. Imports registered a growth of 22.6 per cent compared with 27.7 per cent in the year-ago period.
With export growth remaining substantially lower than import growth, the trade deficit widened to $51.6 billion in the fourth quarter of 2011-12 from $30 billion in the fourth quarter of 2010-11.
“Despite significant improvement in capital inflows in the fourth quarter 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 deterioration in the current account,” the apex bank said.
