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Mumbai, Sept. 30: India's current account deficit (CAD) today peaked at 4.9 per cent of GDP, or $21.8 billion, in the first quarter ended June 30.
But the number wasn't as bad as the pundits had feared with market estimates ranging between $22 billion and $25 billion.
CAD is the difference between inflows and outflows of foreign capital.
The Reserve Bank of India, which released the CAD number after market hours, said a widening trade deficit and a slow recovery in net invisibles (income and services) had led to a 29 per cent jump in CAD from the $16.9 billion in the same quarter a year ago.
The stock markets had swooned early in the day under the burden of apprehensions that CAD — a number that economists, foreign investor, and global credit rating institutions have increasingly flagged as a source of deep worry — would spiral upwards.
The worry had been fanned by talks of a widening trade deficit and data points that showed that foreign investors had started pulling out money from emerging markets after the US Federal Reserve announced in May that it would taper its cheap money policy later this year.
The Sensex tumbled 347.50 points to close at a new three-week low of 19379.77, with the skittishness in the market amplified by the worry over CAD data and fears of a government shutdown in the US because of the budget impasse at Capitol Hill.
India's rising CAD has been blamed as one of the key reasons behind the recent rout in the value of the rupee that plunged to a low of 68.85 against the dollar last month.
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Last year, India reported CAD of $88.2 billion that was financed entirely out of dollar inflows.
CAD is projected to go down to $70 billion this year, but the fear is that the country may no longer be able to finance it from fund inflows. Since May 22, portfolio investors have started taking money off the table — especially in the domestic markets — after the US Federal Reserve announced that it would start tapering its quantitative easing programme this year.
The Fed surprised markets on September 18 by deciding to continue with its $85 billion a month bond buying plan but could start cutting back as early as next month.
Net invisibles — arising from dollar receipts of software exporters and remittances from expatriates — grew 7.2 per cent to $28.7 billion during the first quarter.
Future outlook
Soumya Kanti Ghosh, chief economic adviser of the State Bank of India, said services exports had grown at a decent pace and inward remittances had been strong, ensuring that CAD wasn't a really bad number.
Ghosh said the positive surprise in the first quarter could be built on in the second quarter ended September 30.
With India's trade deficit falling to $10.9 billion in August from $12.2 billion in the previous year because of measures taken by the government to control imports of gold, he reckoned that the current account deficit would show a huge drop in the third quarter.
"We expect CAD will be less than $10 billion in the second quarter (1.5 to 1.7 per cent of GDP) and, for the whole year, we maintain that CAD will be around 3.8 per cent of GDP (or $67 to 68 billion)," Ghosh added.
His view was echoed by Bhupali Gursale, economist at Angel Broking.
"CAD for the first quarter has surprised positively by coming in below market expectations owing to higher-than-anticipated net invisibles," Gursale said.
While merchandise exports declined 1.5 per cent to $73.9 billion during the period, merchandise imports recorded an increase of 4.7 per cent at $124.4 billion.
The jump in imports during the first quarter was largely led by a steep rise in gold imports in the first two months.
The Reserve Bank added that if one were to exclude the increase in gold imports of $7.3 billion during the period, CAD would work out to $14.5 billion, translating into 3.2 per cent of India's GDP.
Data showed that while growth in services exports moderated to 2.1 per cent ($36.5 billion) during the first quarter compared with 6.1 per cent ($35.8 billion) last year, imports of services registered a higher decline of 5.5 per cent ($19.7 billion) against a growth of 19.3 per cent at $20.8 billion in the corresponding quarter of the preceding year.
As a result, net receipts on account of services came in higher at $16.9 billion compared with $15 billion in the corresponding period of 2012-13.
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