CAD narrows to 1.3% of GDP in Dec quarter

According to the RBI, CAD narrowed to 1.4 per cent in April-December 2015 from 1.7 per cent in the year-ago period on the back of the contraction in the trade deficit.

By: ENS Economic Bureau | Mumbai | Published:March 22, 2016 1:45 am

India’s current account deficit (CAD) in the October-December quarter narrowed to 1.3 per cent ($7.1 billion) of the GDP from 1.7 per cent ($8.7 billion) a quarter earlier. The balance of payments surplus in October-December was $4.1 billion, compared to a deficit of $856 million in July-September, according to the Reserve Bank of India.

The contraction in CAD was primarily on account of a lower trade deficit ($34 billion) than in Q3 of last year ($38.6 billion) and $37.4 billion in the preceding quarter. “Net services receipts moderated on Y-o-Y basis largely due to fall in export receipts in transport and financial services, though there has been marginal improvement over the preceding quarter,” the RBI said.

According to the RBI, CAD narrowed to 1.4 per cent in April-December 2015 from 1.7 per cent in the year-ago period on the back of the contraction in the trade deficit. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $15.8 billion, a decline from their level in the preceding quarter as well as from a year ago. However, after moderating in Q2, net foreign direct investment again picked up and stood at $10.8 billion in Q3.

“There has been a marginal net outflow of $0.2 billion in portfolio investment in Q3 of 2015-16 as against net outflow of $3.5 billion in the preceding quarter; equity outflows in Q3 were almost offset by inflows into the debt segment,” the RBI said.

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Non-resident Indian (NRI) deposits moderated significantly in Q3 of 2015-16 over their level in Q3 last year as well as the preceding quarter.

On a balance of payments basis (excluding valuation effects), the foreign exchange reserves increased by $14.6 billion during April-December 2015 as compared with $31.3 billion during April-December 2014. The foreign exchange reserves in nominal terms (including the valuation effects) increased by $8.7 billion during April-December 2015 compared with $16.4 billion during the same period of preceding year.

“During April-Feb FY16, India’s merchandise trade deficit has narrowed by $13 billion to $113.4 billion owing to savings of $26.3 billion in net oil imports due to lower oil prices. This is expected to result in a CAD of 1 per cent in FY16, the lowest in a decade,” Religare said in a report.

According to Devendra Pant, chief economist, India Ratings, slower growth of net services exports, and decline in remittances over second quarter of2015-16 and third quarter of 2014-15 are cause of concerns. Remittances are largely affected by subdued performances from Middle East due to collapse of oil prices, he said.

Richa Gupta, senior director, Deloitte India said: “The CAD came in line with expectations … The contraction was essentially on the back of a lower trade deficit as fall in imports has been higher than the fall in exports. The CAD is likely to remain stable and print in at 1.5 pc for FY16 and is likely to be easily funded by the quantum of inflows.”

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