RBS: Current account deficit hits a new record; basis BOP deteriorates significantly

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India Strategy – Current account deficit hits a new record; basis BOP
deteriorates significantly

India’s current account deficit reached US$15.8bn for the September 2010 quarter, a record level
in both absolute terms as well as a % of GDP (4.1%). The current account deficit for the June
2010 quarter was revised down to US$12.1bn (3.2% of GDP) from the earlier reported
US$13.4bn. By comparison, the current account deficit was only US$9.2bn (3.0% of GDP) for the
September 2009 quarter.
The balance of payments of US$3.3bn for the September quarter represented 0.9% of GDP.
However, the basis BOP (BOP excluding portfolio flows) was a deficit of US$15.9bn (4.1% of
GDP), also another record. The deterioration in the basis BOP supports our concerns regarding
the funding of India’s current account deficit via volatile portfolio flows.