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India’s current account balance has been subject historically to pronounced seasonality – improving sharply in the second half of each fiscal year (October- March). For FY09/10, however, we were surprised that the seasonal impact did not apply – instead, the current-account deficit actually widened for October 2009-March 2010 (to 3.4% of GDP, from 2.2% of GDP for April-September 2009). There were two main factors responsible; the trade balance was broadly unchanged between the two halves of the fiscal year

Here is what Fitch the international rating agency thinks of India. It said,

The Negative Outlook on the Local?Currency IDR reflects the agency’s judgement that the fiscal deterioration in the year to end?March 2009 (FY09) and FY10 has been partly structural in nature, and that India’s public finances are set to stress comparisons with ‘BBB’ peers beyond breaking point. The agency looks for meaningful fiscal consolidation measures to get India’s public finances onto a path consistent with the current ratings.

Read moreCurrent Fitch Sovereign Rating of India

If you read the Outlook magazine dated Dec-21st, you will notice that despite objections raised by then Finance Minister Mr. P. Chidambaram and Agriculture, Food and Civil Supplies Minister – Mr. Sharad Pawar, empowered group of ministers headed by Mr. Pranab Mukherjee under the controversial leadership of then Commerce Minister Mr. Kamal Nath pushed for Rs 2,500 cr Rice Export Scam when India itself was facing food inflation and rice shortage.  So now you know why prices of food and essential commodities rise 🙂