CAD widens to 2.4% on higher trade deficit

Aditi Nayar, principal economist, ICRA, said: “The sharp surge in the CAD in Q1 FY18 relative to Q1 FY17 comes as no surprise, with the spike in gold imports prior to the introduction of GST responsible for half of this uptick.

By: ENS Economic Bureau | Mumbai | Published:September 16, 2017 3:42 am

India’s current account deficit (CAD) widened sharply to $14.3 billion (2.4 per cent of GDP) in the April-June quarter of 2017-18 — a four year high from $400 million (0.1 per cent of GDP) in the year-ago period. According to the Reserve Bank of India, the widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit ($41.2 billion) brought about by a larger increase in merchandise imports, mainly gold. CAD was $3.4 billion (0.6 per cent of GDP) in the fourth quarter of FY17.

Net services receipts increased by 15.7 per cent on a y-o-y basis on the back of a rise in net earnings from travel, construction and other business services, the RBI said. Private transfer receipts at $16.1 billion increased by 5.3 per cent over the year-ago quarter.

Aditi Nayar, principal economist, ICRA, said: “The sharp surge in the CAD in Q1 FY18 relative to Q1 FY17 comes as no surprise, with the spike in gold imports prior to the introduction of GST responsible for half of this uptick. Moreover, the lagged impact of the rupee appreciation was partly responsible for a faster rise in non-oil non-gold imports relative to exports, bloating the size of the merchandise trade deficit.”

“However, the healthy 15 per cent increase in the services trade surplus, modest increase in secondary income inflows and decline in primary income outflows shielded the current account deficit from an even larger deterioration,” Nayar said. With the size of the CAD in Q1 FY18 nearly as high as the FY17 level of $15 billion, ICRA said the FY18 deficit is likely to double to around $30-32 billion (1.2-1.3 per cent of GDP).

Gold imports have surged to over $15 billion in April-August 2017, from around $ 6 billion in the same period of FY17, exerting pressure on the external account. With substantial restocking ahead of the festive season, and the recent monsoon and sowing trends suggestive of modest rural demand, gold imports may moderate in the months ahead, ICRA said.

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