Balance Of Payment Situation in India !!!!!!

Current Account Deficit (CAD) is now a days become a crucial matter for the Indian government. Due to heavy subsidy, higher import as compared to export has made problem more serious. Balance of payment (BOP) during January to March quarter has grown sharply. BoP, in Q4FY12, showed a deficit of USD5.7bn, as net capital inflows of USD16bn were insufficient to fund CAD that came at an elevated level of USD21.8bn (against expectation of USD20bn). The main reason for the increase in CAD is elevated levels of oil and gold imports (USD16bn in Q4 FY12 vs USD12.7bn in Q3FY12), along with weak external demand. Because of these reasons, trade deficit increased to USD52bn in Q4FY12 from USD49bn in Q3FY12. Ironically, in Q4, trade deficit tends to narrow, reflecting year‐end seasonality (as exporters tend to ramp up sales in Q4 to improve financial result). 

Highlights of BoP FY 2011-12

• In 2011-12, the CAD rose to US$ 78.2 billion (4.2 per cent of GDP) from US$ 46.0 billion (2.7 per cent of GDP) in 2010-11, largely reflecting higher trade deficit on account of subdued external demand and relatively inelastic imports of POL and gold & silver.
• Net inflows under Capital and Financial account (excluding changes in reserve assets) were higher at US$ 67.8 billion during 2011-12 as compared with US$ 62.0 billion during 2010-11. However, there was a drawdown of reserves to the extent of US$ 12.8 billion during the year as against an accretion of US$ 13.1 billion in 2010-11.
  
  
  
  
  
  
  There are a number of risks to the view that country’s external position is likely to improve. Anemic growth in the developed markets of the U.S. and Europe could be a barrier to export growth. Crude oil prices may gain, especially since European Union oil sanctions on Iran have kicked in from July 1. Also, Our government heavily subsidizes some fuel products for end-consumers, which keeps the demand for fuel artificially high. If it doesn’t cut back on fuel subsidies as it has committed to do, the pressure on the current account deficit may continue. The sharp fall in the Indian rupee against the dollar is likely to discourage imports, as companies will have to pay more rupees for goods priced in dollars. It also swells earnings from exports when converted into Indian rupees, which will encourage Indian companies to export more. These simultaneous developments could reduce the current account gap.