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Current account gap widens

Mumbai, Dec. 31: The country’s current account deficit (CAD) rose to a record 5.4 per cent of its gross domestic product (GDP) for the second quarter ended September 2012 as imports exceeded exports.

The deficit widened to $22.3 billion compared with $16.4 billion in the preceding quarter and $18.9 billion in the corresponding period of last year.

Economists said the slowdown in the economy was a major reason for the adverse numbers. CAD occurs when a country’s import of goods, services and transfers are higher than the exports.

This higher current account deficit came on the back of an increase in trade deficit.

According to the balance of payments data released by the Reserve Bank of India (RBI) today, a steeper decline in exports over imports led to the widening of trade deficit to $48.3 billion during the second quarter from $44.5 billion in the corresponding quarter of the previous year.

Experts had expected the CAD to be around 5 per cent of the GDP for the September quarter. The central bank, which has often raised concerns on twin deficits (current account deficit and fiscal deficit), has been pointing out that the domestic economy can only sustain a CAD of 2.5 per cent of its GDP. The present number is, thus, way above the RBI’s comfort level.

In its recent financial stability report, the RBI had warned that the country’s financial stability remained at risk because of the twin deficits, falling growth and persistent elevated level of inflation.

According to the RBI, on a balance of payments basis, merchandise exports at $69.8 billion recorded a decline of 12.2 per cent year-on-year during the second quarter of the current fiscal against an increase of 45.3 per cent during the corresponding quarter of last year.

Similarly, imports also registered a decline of 4.8 per cent during the quarter over an increase of 38.1 per cent during same period of last year.

On the services front, exports recorded a lower growth of 7.7 per cent at $34.8 billion in the second quarter of this fiscal compared with 10.1 per cent in the same period of 2011-12 largely because of lower growth in receipts under transports, travel, insurance and pension, and software services, the RBI added.

 
 
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