Journalism of Courage
Foreign investors arent convinced about India yet,but the good news is the CAD is more manageable
Though the hike in the CAD from 3.6 per cent of the GDP in the last quarter of 2012-13 to 4.9 per cent in the first quarter of the current fiscal year sounds ominous,the data released by the RBI on Monday is largely irrelevant. While the first quarter merchandise trade deficit was 50.5 billion and the CAD 21.8bn,exports have picked up significantly since. The average trade deficit rose from 14bn per month in Q1 of 2012-13 to 19bn per month in Q3,before falling to 17bn in Q1 this year. In July and August,however,this trade deficit has narrowed sharply to a monthly average of 11.5bn. When the RBI puts out the CAD data for the quarter ending September 2013,chances are the CAD could be down to anywhere between 5-6bn. Thats a dramatic fall and also means we could end 2013-14 with a CAD of around 55-60bn,well below the 70bn estimate put out by the finance ministry a couple of months ago,a number most scoffed at then.
With the US taper now put off by at least six months,the rupee is likely to be more stable,as will inflows. The flip side is that the US shutdown will slow growth and so worsen the CAD in the months ahead. What you gain on the swings,you lose on the roundabouts. The larger point,however,is that much of the deterioration in the CAD,and its improvement,lies in Indias control. Stepping up production of coal,oil,gas and iron ore,the most obvious import-substituting items,will be key.
