Current account gap prints slightly below expectations at 4.9% of GDP for Q1, while eight core industries log 3.7% growth in August.
Concerns on current account deficit (CAD) are out of the way, but fiscal deficit needs utmost attention of the government, data showed on Monday.
For the quarter ended June, CAD came in at $21.8 billion, or 4.9% of the gross domestic product (GDP), a tad less than the 5% or so the market was expecting. Last financial year, CAD was at 4% of GDP in the first quarter and 3.6% in the fourth quarter.
The major driver was the huge trade deficit, which increased from $43.8 billion to $50.5 billion over a year.
Imports grew 4.7% to $124.4 billion in the first quarter as against a decline of 3.9% to $118.9 billion in the same period last fiscal.
Sequential growth of $7.3 billion in gold imports was to be blamed for a bloated trade deficit in the first three months of the fiscal. The Reserve Bank of India (RBI) said that excluding the increase in gold imports, CAD would have worked out to $14.5 billion, which translates to 3.2% of GDP.
On the other hand, exports fell 1.5% to $73.9 billion as compared to the decline of 4.8% to $75 billion in the first quarter.
Growth in services exports fell to 2.1% as compared to 6.1% in the same period.
Private transfers, that include remittances, were at $16.8 billion similar to that in August last year.
RBI said there was a slight drawdown in foreign exchange reserves of $0.3 billion as against an accretion of $0.5 billion the first quarter of last financial year.
A Prasanna, chief economist at ICICI Securities Primary Dealership, expects CAD to improve going forward, mainly as a result of recent measures taken by the government and the banking regulator. “We may end up below government’s target of $70 billion by March 2014,” he said, adding that the focus will be on banks’ overseas borrowings now.
In the first quarter, overseas borrowings by banks increased 57.5% to $4.7 billion from $3 billion in the same period last fiscal.
While the government’s year-end target on CAD looks achievable, economists said that fixing fiscal deficit requires more than just ad hoc measures.
In the first five months, the fiscal deficit had crossed 74.6% of the annual projection compared with 65.7% last year.
There are high chances that government may miss its target of 4.8% of GDP by the end of this fiscal.
Meanwhile, a growth of 3.7% in eight core industries, which have a combined weight of 37.9% in the Index of Industrial Production, in August raised hopes of a sustained trend going forward. This is the highest in the past seven months, though lower than the 6.1% seen in August last year.
The biggest component – electricity generation – grew 6.7%, followed by steel and cement production that grew 4.3% and 5.5%, respectively. Coal production staged a growth of 5.5% in August – higher than the 1.2% growth seen in July, but way under the 11.8% logged last year.
“If the increase in coal is an indication of improvement in terms of infrastructural constraints that was holding down growth, this bodes well to economic growth and activity,” said Saugata Bhattacharya, economist at Axis Bank.
Painful data
The major driver of CAD was the huge trade deficit, which increased from $43.8 billion to $50.5 billion over a year
Imports grew 4.7% to $124.4 billion in the first quarter as against a decline of 3.9% to $118.9 billion in the same period last fiscal
On the other hand, exports fell 1.5% to $73.9 billion as compared to the decline of 4.8% to $75 billion in the first quarter.
RBI said there was a slight drawdown in foreign exchange reserves of $0.3 billion as against an accretion of $0.5 billion the first quarter of last financial year.
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