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CAD widens to 1.7% QoQ; trade deficit rises to USD 34 bn

The main reason for the increase in the CAD is expected to be the widening of the trade deficit to USD 34 billion from the USD 30.6 billion. However, the CAD and trade deficit are much lower than a year-ago levels.

The first quarter current account deficit for the fiscal year FY15 widens to 1.7 percent from 1.2 percent in Jan-Mar quarter. The CAD widens to USD 7.8 billion versus USD 1.3 billion quarter-on-quarter.

The main reason for the increase in the CAD is expected to be the widening of the trade deficit to USD 34 billion from the USD 30.6 billion in a quarter-ago period. However, the CAD and trade deficit are much lower than a year-ago levels. The CAD narrowed sharply from USD 21.8 billion or 4.8 percent of GDP and the trade deficit narrowed from USD 50.5 billion, year-on-year.

Imports have declined to 6.5 percent and the exports are up to 10.6 percent. Gold imports are down to USD 7 billion from USD 16 billion comparable to last year. Non-gold imports, however, are up 1.3 percent.

Is widening of CAD a worry?

Indranil Pan of Kotak believes the widening of the current account deficit is not an immediate worry but may impact the gross domestic product if the mining of metals is not increased substantially.

According to Pan, the trade deficit is likely to increase if government does not come out with a clear decision on coal block allocation and metal mining soon. The move will not only broaden the CAD but will also impact the economic growth of the country, he adds.

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