Current account deficit contracts

The current account deficit (CAD) for the January-March period narrowed to $ 0.3 billion, which is 0.1 per cent of the GDP as compared to $7.1 billion in the preceding quarter and $0.7 billion during the same period of the previous year, according to the latest data released by the Reserve Bank of India (RBI).

The balance of payments surplus in January-March was $3.3 billion, compared to a surplus of $4.1 billion in October-December.

The lower current account deficit is mainly due to contraction in trade deficit.

“The contraction in CAD was primarily on account of a lower trade deficit ($ 24.8 billion) than in Q4 of last year ($ 31.6 billion) and $ 34.0 billion in the preceding quarter,” according to the RBI. Net services receipts had declined on a year-on-year basis largely due to fall in exports of transport, financial services and telecommunication, computer and information services.

Net FDI moderates

However, net foreign direct investment moderated to $ 8.8 billion in Q4’16 from $ 9.3 billion during the same period of the previous year. Non-resident Indian (NRI) deposits, though, increased in Q4 of 2015-16 over their level in Q4 last year as well as the preceding quarter.

Portfolio investment recorded a net outflow of $1.5 billion in Q4 of 2015-16, as against a net inflow of $12.5 billion in the corresponding period of last year,primarily reflecting net outflow in the debt segment. For the full financial year 2015-16, CAD narrowed to 1.1 per cent of GDP as compared to 1.3 per cent a year earlier.

Trade deficit shrinks

For the full year, trade deficit narrowed to $ 130.1 billion in 2015-16 from $ 144.9 billion. According to credit rating agency ICRA, the current account deficit could widen modestly from $ 22 billion in FY2016 to $25-30 billion in FY2017, though it will remain about 1.2-1.3 per cent of GDP.

“A sustained rise in commodity prices, particularly crude oil, would boost the import bill… while simultaneously counteracting the risk posed by lower remittances, particularly from the Middle East,” said Aditi Nayar, Senior Economist, ICRA.