Thank God for migrants

With the current account deficit (CAD) increasing to 3.7% of GDP in the September quarter as compared to 3.4% in the previous quarter, the stage is all set for it to rise further, given that November exports growth has fallen to 3.9%. Indeed, the only reason why CAD did not balloon out of control—it rose to $16.9 billion from $15.8 billion in the June quarter while the trade deficit rose to $43.9 billion from $41.7 billion (services balance remained unchanged at $15.5 billion)—was because remittances from Indians in the Gulf primarily rose to $7.5 billion from $6.8 billion in the June quarter. Without the remittances, September current account deficit would have been 5.4% of GDP! Under normal circumstances, the deficit wouldn’t have mattered as much, but this time around, the deficit has risen at a time when capital inflows have slowed to a trickle. FDI is down to $4.4 billion from $7.9 billion in June and FII was minus $1.2 billion versus $2.5 billion in the June quarter (and $19.2 billion in September 2010!).

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