India’s current account deficit (CAD) surged to $3.4 billion, or 0.6 per cent of GDP, in the fourth quarter of 2016-17 as against $0.3 billion (0.1 per cent of GDP) in the same quarter of last year but narrowed from $8.0 billion (1.4 per cent of GDP) in the preceding quarter.
According to the Reserve Bank of India, the widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit ($29.7 billion) brought about by a larger increase in merchandise imports relative to exports. “Net services receipts increased on a y-o-y basis on the back of a rise in net earnings from travel, transport, construction and other business services,” it said.
“The year-on-year widening of the merchandise trade deficit in Q4 was led by a sharp expansion in net oil imports and gold imports, which ate into the improved services trade surplus. The size of the current account deficit was somewhat smaller than our expectation of $4.0-5.0 billion, benefitting from a smaller outflow of primary income,” said Aditi Nayar, principal economist, ICRA.
On a cumulative basis, the CAD narrowed to 0.7 per cent of GDP in 2016-17 from 1.1 per cent in 2015-16 on the back of the contraction in the trade deficit. India’s trade deficit narrowed to $112.4 billion in 2016-17 from $130.1 billion in 2015-16.
Private transfer receipts, mainly representing remittances by Indians employed overseas, at $15.7 billion remained almost at the same level as in the preceding year. In the financial account, net foreign direct investment at $5.0 billion in Q4 of 2016-17 moderated from its level a year ago, the RBI said.
The RBI said net portfolio investment, however, recorded substantial inflow of $10.8 billion in Q4 of 2016-17 in both equity and debt segment, as against net outflow of $1.5 billion in Q4 last year. Net receipts on account of non-resident deposits amounted to $2.7 billion in Q4 of 2016-17, lower than $4.4 billion a year ago. In Q4 of 2016-17, there was an accretion of foreign exchange reserves (on BoP basis) to the tune of $7.3 billion as compared with an increase of $3.3 billion in Q4 of last year.
In fiscal 2017, net invisible receipts were lower, mainly due to moderation in both software exports and net private transfer receipts, and higher outgo on account of primary income (profit, interest and dividends). Gross FDI inflows to India in 2016-17 at $60.2 billion increased significantly from $55.6 billion in 2015-16.
“Net FDI inflows (i.e., net of outward FDI) in 2016-17 at $35.6 billion moderated marginally from $36.0 billion in 2015-16,” it said. The RBI said portfolio investment recorded a net inflow of $7.6 billion in 2016-17 as against an outflow of $4.5 billion a year ago. In 2016-17, there was an accretion of $21.6 billion to the foreign exchange reserves as compared with $17.9 billion in 2015-16.