India's Current Account Deficit At Record High; IIP Statement Shows Increase In Net Liabilities To $248B

India's current account deficit deteriorated to a record high of 4.5 percent of the GDP or $21.7 billion - a level seen for the first time in 20 years - for the quarter ending March 2012, data released by the Reserve Bank of India show.

Posing new difficulties for the struggling economy and the government, the current account deficit-difference between imports and exports reached 4.5 percent of the GDP and more than tripled when compared to the 1.3 percent for the same period in the previous year.

The current deficit is worse than that recorded in 1991, at 3 percent, during one of its worst Balance of Payments (BoP) crisis in the recent history.

The decline in exports due to low global demand, as an offshoot of the euro zone crisis along with high imports, has led to the current crisis. The high imports of crude and gold weighed heavily in the current account deficit, accounting for more than 45 percent of the total imports during the year.

In the year 2011-2012, the growth in exports slumped to 23.6 percent from the 37.5 percent recorded last year while imports registered a growth rate of 31.1 percent from that of 26.7 percent in the previous year.

The stress witnessed in India's Balance of Payments (BoP) in the third quarter continued during the fourth quarter of 2011-12 as well due to large increase in imports, said the RBI in a statement.

Meanwhile, India's external debt at the end of March 2012 was at US$345.8 billion (20.0 percent of GDP), recording an increase of US$39.9 billion or 13.0 percent over that at the end of March 2011, on account of a significant increase in commercial borrowings, short-term trade credits and rupee-denominated non-resident Indian deposits, the RBI said.

The country's long-term debt at US$ 267.6 billion and short-term debt at US$ 78.2 billion accounted for 77.4 percent and 22.6 percent, respectively, of the total external debt as of end-March 2012. The Banking regulator said that India's foreign exchange reserves provided a cover of 85.1 percent to the external debt stock at the end of March 2012 as compared with 99.6 percent cover as at the end of March 2011.

International Investment Position (IIP) for March 2012

India's net IIP, the difference between an economy's external financial assets and liabilities, showed an increase in the net liabilities to US$244.8 billion at the end of March 2012 from US$204.8 billion at the end of December 2011.

This rise in net liabilities by US $ 40.0 billion was mainly on account of US $ 45.5 billion increase in liabilities, partially offset by an increase in assets of US $ 5.5 billion, said the RBI.

The data released from the RBI said that the international financial liabilities widened by US$ 45.5 billion over the previous quarter to US$ 682.0 billion as at end-March 2012 while direct and portfolio investments in India increased by US$ 15.7 billion and US$ 19.2 billion, respectively.