CAD Rises to $14.1 bn in Q1 Despite Higher Exports.

Widening gap between exports and imports pushed up India's current account deficit (CAD) to $14.1 billion, or 3.1% of the GDP, in April-June quarter of the current fiscal.

The CAD, which represents the difference in inflows and outflows of foreign exchange of a country, was $12 billion in the same period in the previous fiscal.

"A rise in trade deficit despite sharper increase in exports than imports, and increase in net export of services, led to widening of CAD as compared with Q1 of the previous year," the Reserve Bank of India's (RBI) Balance of Payments data said.

According to an annual report of the RBI, "In the baseline scenario, the CAD would remain at a sustainable level in 2011-12. Estimates of sustainable CAD suggest a threshold of 2.7-3% of GDP."

According to analysts, the CAD beyond 2.5% of GDP poses a challenge for the economy if not backed by increased capital inflows.

Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan had said that there is no problem in financing CAD of 2.5%.

"So long as we continue to maintain a healthy growth rate and so long as the fiscal deficit continue to remain at reasonable control, there should be no problem in attracting capital flows," he said.

But, he said, capital flows by nature are very volatile. It is influenced by both domestic and international factors. It is also affected by push factor as well pull factor. Therefore, we need to moderate our dependence on the financing of CAD through capital flows.

On a BoP (Balance of Payments) basis, merchandise exports recorded 47.1% growth, while imports registered a growth of 33.2% during April-June quarter of this fiscal.

The trade deficit, in absolute terms, amounted to $35.4 billion in this period against $32.3 billion in the corresponding quarter of the previous year.

The RBI said that net exports of services recorded a growth of 19.1% in the first quarter, mainly due to higher growth in receipts led by services, like computer and information, transportation, telecommunication and other business services.

It further said that net secondary income, reflecting mainly the remittances from the overseas Indians, at $13.7 billion remained buoyant and recorded a growth of 4.6% during first quarter of this fiscal as against 1.3% in the same period last year.

Source : smartinvestor.in