Current Account Deficit reaches record highs

[sob]

Rupee may face pressure as current account deficit rises to a record - Print View - Livemint

In a move that could put fresh pressure on the rupee, India's external sector risks worsened after the Reserve Bank of India (RBI) reported a record current account deficit (CAD) of 6.7% of gross domestic product (GDP) in the third quarter of the current fiscal.
The steadily worsening balance of payments (BoP) outlook has been a central point of concern to not only RBI, but to the finance ministry as well. CAD is the sum of the trade deficit, exports less imports, and net invisibles such as accruals on account of software exports.

CAD widened to $32.6 billion mainly on account of a larger trade deficit and moderation in net invisibles. India's total external debt stock stood at $376.3 billion at the end of December compared with $345.5 billion at the end of March. Of this, short-term debt was 24.4% at the end of December 2012 compared with 23.3% a year ago.
CAD was 5.4% of GDP in the preceding quarter, and 4.4% in the same period a year ago.

CAD or Current Account Deficit is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

In simplistic terms it means it is the sum total of Exports-Imports-Loan Repayments or FII outflows+remittances from NRIs.

A couple of years ago a CAD at 3% of GDP was considered high but now it is at 6.7%in the 3rd Quarter. It is expected to improve marginally in the 4th quarter due to better export figures but the problem is that as a percentage of the GDP with the denominator sinking the CAD percentage may not go down.

 

[sob]

The first quarter of 2013-14 may see CAD going up again after a dip in the 4th qtr of 12-13

Current account deficit (CAD) set to dip in Q4, but rise anew in Q1 - Money - DNA

This is not a good news for the Rupee and put a severe stress on the economy.

 

[Daredevil]

Some people are saying that Rupee is over valued and therefore it should be allowed to depreciate to reach its right value. This will increase exports and discourage imports leading to some balancing of CAD. Rs. 60 seems to be right value for $1

 

[Neil]

Some people are saying that Rupee is over valued and therefore it should be allowed to depreciate to reach its right value. This will increase exports and discourage imports leading to some balancing of CAD. Rs. 60 seems to be right value for $1

doesnt that increase inflation...?? and considering our industrial output at lowest levels kind of bad move right...??

 

[Daredevil]

doesnt that increase inflation...?? and considering our industrial output at lowest levels kind of bad move right...??

Actually the depreciation of rupee happens due to inflation and not the other way round. By making our imports expensive, there will be some cool down in spending our foreign exchange.

 

[badguy2000]

doesnt that increase inflation...?? and considering our industrial output at lowest levels kind of bad move right...??

of course, it is called Imported inflation.... it is imported by rising oil cost.

 

[Neil]

Actually the depreciation of rupee happens due to inflation and not the other way round. By making our imports expensive, there will be some cool down in spending our foreign exchange.

sorry DD sir eating your brain here...

sir but whatever we import will be costly like say oil and stuffs and u cant stop essentials from importing isnt it...??

 

[badguy2000]

the worse trade balance just show how hard the industrialziation and upgrade of industry go on in India.....

 

[Daredevil]

sorry DD sir eating your brain here...

sir but whatever we import will be costly like say oil and stuffs and u cant stop essentials from importing isnt it...??

Of course it will. But there are just so many businesses which are dependent on imports and they will be subdued. And the savings from the decrease in import will be far greater than the increase in the cost of imports. This will also give fillip to our local industries to supply to our domestic consumption.

 

[trackwhack]

Congress knows they will lose 2014. Might as well handover a broke country to nda and blame them for the mess.

 

[shom]

the worse trade balance just show how hard the industrialziation and upgrade of industry go on in India.....

Machines are made to be oiled by its owner and nobody else,,, so plzz mate maintain that ,,,,,,
See I found many of your machines really dosen't work properly mate,,,,
http://www.marketoracle.co.uk/Article38147.html
Small-business suicides expose China’s hidden economic crisis | Seattle Globalist
China Economic Crisis: Why 44 Percent of Wealthy Chinese Want to Leave the Country
China’s Looming Economic Crisis. Poverty and Rising Social Inequalities | Global Research
Stop thinking about fire in other houses when your own house is facing Lava streams,,,,,,, hahahahahaaa

 

[shom]

the worse trade balance just show how hard the industrialziation and upgrade of industry go on in India.....

Machines are made to be oiled by its owner and nobody else,,, so plzz mate maintain that ,,,,,,
See I found many of your machines really dosen't work properly mate,,,,
http://www.marketoracle.co.uk/Article38147.html
Small-business suicides expose China’s hidden economic crisis | Seattle Globalist
China Economic Crisis: Why 44 Percent of Wealthy Chinese Want to Leave the Country
China’s Looming Economic Crisis. Poverty and Rising Social Inequalities | Global Research
Stop thinking about fire in other houses when your own house is facing Lava streams,,,,,,, hahahahahaaa

 

[hello_10]

Of course it will. But there are just so many businesses which are dependent on imports and they will be subdued. And the savings from the decrease in import will be far greater than the increase in the cost of imports. This will also give fillip to our local industries to supply to our domestic consumption. :thumb:

this news doesn't surprise me. India has to keep Indian Rupees value at somewhere close 1.0 INR = 1.5 Pakistan Rupees, and 1 Yuan = 10.0 INR, somewhere close to, of these currencies of its neighbors. and until India makes it import expansive enough to be less imported this way, we will have bigger CAD in future. and yes it will then need to bring the 1$ = INR 65 this way, which will then make the import of oil expansive too but we do know that India can't import more than what it already does. and until the imported products are made expansive enough to be less imported, the growing CAD will not be controlled

the exchange rate value by end 2002/early 2003 was standing at around 1.0 US$ = Rs 50, while its hardly around 1.0 USD = 54.5 rupees right now, while India suffered around 7% annual inflation on average since 2002, which has increased manufacturing cost by around twice since then this way, while China on comparison had only around 3% annual inflation on average since then. China, with which India has highest trade deficit for those manufactured products which may be produced in India itself.... similarly India suffer very high trade deficit with EU as below for those luxury products which has to be made expansive enough to be less imported this way...... :thumb:

India's exports to European countries increased by about 16 per cent to USD 57.7 billion in 2011-12, while imports rose by about 29 per cent year-on-year to USD 91.5 billion.

Exports to Europe up 16%; imports 29%

 

[hello_10]

Rupee may face pressure as current account deficit rises to a record - Print View - Livemint



CAD or Current Account Deficit is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

In simplistic terms it means it is the sum total of Exports-Imports-Loan Repayments or FII outflows+remittances from NRIs.

A couple of years ago a CAD at 3% of GDP was considered high but now it is at 6.7%in the 3rd Quarter. It is expected to improve marginally in the 4th quarter due to better export figures but the problem is that as a percentage of the GDP with the denominator sinking the CAD percentage may not go down.

and at the same time we have a news as below too :ranger:

Foreign companies pulling more money out of India

MUMBAI: Foreign direct investment, the sort of sticky long-term money India craves to fund its current account deficit and build up its infrastructure, may not be so stable after all.

According to a Nomura report, multinational companies have been pulling money out of India at an accelerating rate, moving $10.7 billion out of the country in 2011, up from $7.2 billion in 2010 and just $3.1 billion in 2009.

Outward flows are bad news for a country that this week saw its rupee currency hit a new record low as investors worry about its hefty fiscal and current account shortfalls, slowing economic growth and policy gridlock.

Still, corporate funds continue to enter India even as existing investors exit. Inbound foreign direct investment surged 88 percent to a record $36.5 billion in the fiscal year that ended in March, according to official data.

"Global deleveraging may have forced companies to sell their Indian assets and repatriate funds to their home country," Nomura analysts wrote in the Friday note.

"At the same time, domestic push factors such as slowing potential growth, the high cost of doing business and regulatory uncertainty have weakened the investment climate, likely causing this erosion. This is not a good sign."

Telecoms companies Etisalat of Abu Dhabi and Bahrain Telecommunications Co are leaving India after their mobile phone licences were among those ordered cancelled by an Indian court amid a corruption probe.

New York Life recently exited its 26 percent stake in an Indian insurance venture with Max IndiaBSE 0.03 % for $530 million, while U.S. mutual fund giant Fidelity Worldwide Investment recently struck a deal to unload its India unit to local company L&T Finance Holdings.

Foreign companies have been increasingly frustrated by regulatory uncertainty and a lack of reforms. Rules that would allow foreign companies into the supermarket and airline industries are stalled.

Vodafone, the world's biggest mobile carrier, has repeatedly clashed with authorities in India, which is trying to collect more than $2 billion in taxes from it through a retroactive law change, even after India's highest court ruled in the company's favour.

Vodafone, the biggest overseas corporate investor in India, has said it will not walk away.

The Nomura report said the services, manufacturing and real estate sectors probably saw "the maximum outflow".

Foreign cos pulling more money out of India-Nomura | Reuters

 

[Snuggy321]

Rupee may face pressure as current account deficit rises to a record - Print View - Livemint



CAD or Current Account Deficit is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

In simplistic terms it means it is the sum total of Exports-Imports-Loan Repayments or FII outflows+remittances from NRIs.

A couple of years ago a CAD at 3% of GDP was considered high but now it is at 6.7%in the 3rd Quarter. It is expected to improve marginally in the 4th quarter due to better export figures but the problem is that as a percentage of the GDP with the denominator sinking the CAD percentage may not go down.

Mhhhh this is the data of the 3rd quarter right? So it is not from this FY.

 

[sob]

Mhhhh this is the data of the 3rd quarter right? So it is not from this FY.

It is from the FY 12-13 which is getting over today. Generally there is a time lag of a couple of months for the data to be collated and then released, in this case I think the FM did not want it to be released clos to the Budget.

 

[mylegend]

India should eliminate its subsidy on gasoline and diesel to reduce oil import. India should also invest in critical infrastructure to encourage FDI investment. The very minimum Indian government can do is ensure steady electricity supply and built reliable logistical system around coastal area.

India should have put nationalism aside for the very least at their electricity equipment industry. They impose hefty tariff on Chinese equipment while provide no alternative plan to boost domestic one. For the very least Indian government could have done is to divert all the tariff income from import of Chinese equipment to subsidized its own. However, due to its political motivated natural of the tariff, Indian government failed to adjusted economic side of the problem. The tariff will make the public and domestic equipment company happy but sacrificing broader economy.

To further expand my argument why the electrical equipment tariff is purely political motivated, one must see that the bill offer no solution on fighting capacity shortage, It offer no plan on enhancing domestic manufacturer capability and on how to make up for the lose of Utility firm.

Government policy should be more comprehensive, like the last time when US government raise minimum hourly wage, the bill include tax refund for industry that rely heavily on low cost labor.

After all, you have to improve profitability of power plant to encourage investment.