CAD rises to 2.1% in Q2 as exports dip

The current account deficit (CAD) widened to $10.1 billion, or 2.1 per cent of GDP, for the September quarter compared to 1.2 per cent in the year-ago period due to the higher trade deficit, the Reserve Bank of India (RBI) said on Monday.

CAD essentially reflects the amount by which foreign exchange earnings from exports fall short of the import bill, which has to be paid in foreign currency.

The increase in CAD was primarily on account of higher trade deficit contributed by both a deceleration in export growth and increase in imports, the RBI said.

Merchandise exports growth dipped 4.9 per cent in the second quarter while there was an 8.1-per cent increase in imports due to the surge in inbound gold shipments . A higher CAD also weakens the rupee which in turn increases the cost of imports and foreign travel and education.

The cost of foreign loans also goes up for Indian corporates. For the first six months of 2014-15, the current account gap narrowed to 1.9 per cent from 3.1 per cent in the same period a yearago.

There was a net accretion of $6.9 billion to the forex reserves during the reporting quarter as against a drawdown of $10.4 billion.

Net inflows of NRI deposits at $4.1 billion in Q2 were lower than the $8.2 billion notched up during the days of rupee fall in the year-ago period.