Current account deficit shrinks in Q4 FY11

India's current account deficit (CAD) for the January to March quarter has been lower as against the earlier quarters of FY12 as well as compared to the corresponding quarter of the previous year, the Reserve Bank of India (RBI) said. The CAD narrowed to US$5.4bn in the three months ended March 31, 2011 from a revised US$10bn in the previous quarter (October to December), the central bank said.

The CAD was at US$12.80bn in the January to March quarter of last year. It was at US$16.80bn in the July to September quarter of 2010 and US$12.10bn in the April to June quarter of 2010. India’s CAD narrowed to 1.1% of GDP from 3.05% of GDP during the same period a year ago. For FY11, India's CAD was at US$44.3bn versus US$38.4bn in the previous financial year. The CAD in FY11 amounted to 2.6% of GDP as against 2.8% of GDP in FY10.

Though there was moderation in the capital account surplus because of lower FDI and portfolio flows, it exceeded the current account deficit, leading to an accretion of US$2bn to India’s foreign exchange reserves in the quarter. Net capital flows were significantly lower at US$8.2bn in Q4 FY11, compared with US$15.8bn in the year-ago period as higher inflows on account of ECBs and NRI deposits was offset by lower FDI and FII inflows.

India’s external debt rose 17.2% to US$305.9bn, which was 17.3% of GDP in FY11, on account of the increase in commercial borrowings, short-term credit and bilateral and multilateral borrowings. Long-term debt accounted for almost 79% of the total external debt with short-term debt accounting for the rest.