CAD logs all-time record 4.5% of GDP
India's current account deficit (CAD) widened to the highest ever level to 4.5 per cent of GDP at USD 21.7 billion in January-March period of 2011-12 due to higher imports of oil and gold, the Reserve Bank said today.
For the entire financial year 2011-12, CAD, which represents the difference between exports and imports after considering cash remittances and payments, stood at 4.2 per cent of GDP at USD 78.2 billion-- again the all-time high level.
"On account of large trade deficit, the CAD rose sharply to USD 21.7 billion in Q4 from USD 6.3 billion in Q4 of 2010-11. At this level, CAD worked out 4.5 per cent of GDP (the highest ever) in Q4 of 2011-12 as compared with 1.3 per cent a year ago," RBI said while releasing the Balance of Payment (BoP) statement.
It further said that during 2011-12, "CAD widened to the highest ever level both in absolute terms and as a proportion of GDP,"
CAD was USD 46 billion or 2.7 per cent of the GDP in 2010-11.
"Despite the slowdown in economic activity and rupee depreciation, growth in merchandise imports moderated only mildly from 27.7 per cent in March quarter of 2010-11 to 22.6 per cent in the same period of 2011-12, reflecting inelastic demand for gold and oil," it said.
Higher CAD has adverse impact on rupee value and impacts foreign exchange reserves as well Global investment banker Goldman Sachs said that rising CAD has been a key vulnerability for the economy.
"We think the CAD may have peaked in FY 2012, and will improve gradually due to the sharp depreciation in the INR (Indian Rupee) and falling oil prices. In our base case scenario, the CAD could fall to 3.5 per cent of GDP in FY13," it said.