India Q4FY13 CAD at 3.6%

With the depreciating rupee, the RBI has released India’s external debt data for the March 2013 quarter a day before the scheduled date. The data indicates that the Current account deficit (CAD) for the quarter has narrowed as expected by the markets. That for the January–March 2013 quarter stood at USD 18.1 billion or 3.6% of the GDP. For the fiscal (FY13), the CAD stood at 4.8%. The deficit for the December quarter came in at 6.7%, which led to concerns about the government's ability to raise external debt.

Meanwhile, the data published by the RBI indicated that India’s external debt, as of March 2013, was USD 390 billion, showing a YoY increase of 12.9%. The rise in the total external debt in FY13 was the result of a rise in short-term trade credit. The RBI has also said that there has been a significant increase in external commercial borrowings (ECBs).

The short-term external debt has risen sharply to stand at 24.8% of the total external debt. With this ratio, the short-term funds as percentage of total debt remains at the highest level in the history of the country. Besides, the ratio of short-term debt to total Forex reserves has also increased from 26.6% at the end of FY12 to 33.1% at the end of FY13.

India's external debt is now at its highest level in history. The external debt as a percentage of GDP has also touched 21.2%, which is the country’s highest in the last 12 years. The foreign exchange reserves as percentage of the total debt, which declined below 100% in 2011, now stands at 74.9%, which is at the lowest level in the last 10 years.

The CAD at 3.6% looks good and has now put a brake on the rupee's historic slide. Economists believe that the CAD number may look ugly for the June 2013 quarter. The rupee, which is headed southwards for the last two months, may remain weak considering the facts that the external debt has increased. For the short-term requirement, corporates are taking credit in dollar denominated debt which means that the outflow of rupee is increasing. This indicates that the rupee slide is expected to continue.