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CAD triples to record high of 4.5% of GDP in Q4FY11-12

Commenting on the data global financial services firm Nomura said, “The outlook for net capital inflows depends as much on the domestic pull factors as on the global push factors”

 

Mumbai: Reflecting deterioration of the external sector, India’s current account deficit (CAD) more than tripled to an all-time high of 4.5% of the gross domestic product (GDP) in last quarter of 2011-12 on back of rising oil and gold imports, reports PTI.

In 2011-12, CAD—which represents the difference between exports and imports after considering cash remittances and payments—stood at 4.2% of GDP at $78.2 billion, as against the government’s estimate of 4%.

“On account of the large trade deficit, the CAD rose sharply to $21.7 billion in Q4 from $6.3 billion in Q4 of 2010-11. At this level, the CAD worked out 4.5% of GDP (the highest ever) in Q4 of 2011-12 as compared with 1.3% a year ago,” the Reserve Bank of India (RBI) said while releasing the Balance of Payment (BoP) statement on Friday.

The CAD, according to RBI, “widened to the highest ever level both in absolute terms and as a proportion of GDP.” It was $46 billion or 2.7% of the GDP in 2010-11.

Commenting on the data global financial services firm Nomura said, “The outlook for net capital inflows depends as much on the domestic pull factors (investment climate and growth outlook) as on the global push factors.”

Recent statements from prime minister Manmohan Singh regarding reforms, said, “have been positive, but concrete action on this front is still needed to reverse India’s macro-economic imbalances.”

According to Emkay Global Financial Services, the balance of payment deficit might continue for at least two more quarters.

“Despite the slowdown in economic activity and rupee depreciation, growth in merchandise imports moderated only mildly from 27.7% in Q4 of 2010-11 to 22.6% in Q4 of 2011-12, reflecting inelastic demand for gold and oil,” the RBI said.

Imports of oil precious metals together contributed nearly 45% of total imports in 2011-12.

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