India’s current account deficit (CAD) increased to $10.1 billion (2.1 per cent of GDP) in the second quarter of this fiscal from $7.8 billion (1.7 per cent of GDP) in the preceding quarter and $5.2 billion (1.2 per cent of GDP) in the same quarter of 2013-14.
“The increase in CAD was primarily on account of higher trade deficit, contributed by a deceleration in export growth and increase in imports,” said the Reserve Bank of India (RBI) in a press release on Monday.
Recently, the RBI officials have stated that they are comfortable with the current level of CAD.
On balance of payments, (BoP) basis, merchandise export growth decelerated to 4.9 per cent in the second quarter from 11.9 per cent in same quarter in the previous year. However, merchandise imports increased by 8.1 per cent as against a decline of 4.8 per cent “largely due to a sharp rise in gold imports.” Net services receipts improved by 3.4 per cent “on pick-up telecommunication, computer and information services from their level a year ago.”
The net outflow on account of primary income (profit, dividend and interest), amounting to $6.9 billion in the second quarter, was higher than the corresponding quarter of 2013-14 ($ 6.3 billion) as well as the preceding quarter ($6.7 billion).
The RBI said net flows through foreign direct investment were stable; however, portfolio investment recorded inflows of $9.8 billion as against an outflow of $6.6 billion in the second quarter of 2013-14.
‘Loans’ (net) availed of by deposit-taking corporations (commercial banks) witnessed an outflow of $4.6 billion in the second quarter of 2014-15 owing to higher repayments of overseas borrowings and a build-up of their overseas foreign currency assets.
Net inflows of NRI deposits at $4.1 billion were lower in the second quarter than $8.2 billion in the second quarter of 2013-14.
On a BoP basis, there was a net accretion of $6.9 billion to India’s foreign exchange reserves in the second quarter of 2014-15 as against a drawdown of $10.4 billion in the second quarter of 2013-14.
Trade deficitThe RBI said that with a relatively higher growth in merchandise exports and marginal rise in merchandise imports, the trade deficit narrowed to $73.2 billion during the quarter under reference from $83.8 billion in first half of 2013-14.
“Lower trade deficit coupled with a marginal rise in net services receipts moderated CAD to $17.9 billion in the first half of 2014-15 (1.9 per cent of GDP) from $26.9 billion in the first half of 2013-14 (3.1 per cent of GDP).”
Net inflows under the capital and financial account (excluding change in foreign exchange reserves) rose to $38.5 billion in the first half of 2014-15 from $15.8 billion in the first half of 2013-14.
Lower CAD and rise in flows under financial account resulted in an accretion to India’s foreign exchange reserve to the tune of $18.1 billion in the first half of 2014-15 as against a drawdown of $10.7 billion in the first half of 2013-14.
