India’s Current Account Deficit Narrows

Mumbai: India’s Current Account Deficit (CAD) narrowed in the first quarter of the financial year to $300 million as compared with $6.1 billion in the year-earlier period. The deficit sharank to 0.1 per cent of GDP in the period, as compared with 1.2 per cent.

“The contraction in the CAD was primarily on account of a lower trade deficit ($23.8 billion) than in Q1 of last year ($34.2 billion) and in the preceding quarter ($24.8 billion),” according to a statement from the Reserve Bank of India (RBI), which released the data on Wednesday.

Sequentially, however, the deficit remained stable amid expectations that the current account would show a surplus in the April-June quarter.

Imports declined:

On the basis of balance of payments, merchandise imports declined sharply — by 11.5 per cent — as compared with merchandise exports, which fell 2.1 per cent, leading to a lower trade deficit in Q1 of 2016-17.

Net services receipts declined on a year-on-year basis, largely due to a fall in net earnings on account of travel, financial services and other business services.

Net foreign direct investment also moderated to $4.1 billion in Q1 of 2016-17 from $10 billion a year earlier and $8.8 billion in the preceding three-month period. Higher repayments under external commercial borrowings led to a net outflow under loans to India in Q1 as against net borrowings in the same period last year.

Portfolio investments:

Portfolio investments recorded a net inflow of $2.1 billion in Q1 of 2016-17 as against a marginal outflow in the corresponding period of last year. Portfolio investment recorded an outflow of $1.5 billion in the preceding quarter, primarily reflecting net inflow in the equity component. Accretion to non-resident Indian (NRI) deposits, which were $1.4 billion, moderated from both a year earlier as well as the previous quarter.

The balance of payments posted a surplus of $7 billion for the April-June quarter, a decline from the $11.4 billion surplus recorded a year earlier, the data from the central bank showed.

The contraction in the CAD was due to a lower trade deficit of $23.8 billion in Q1, the RBI said