India’s current account deficit (CAD) rose marginally to $7.9 billion (1.4 per cent of GDP) in the third quarter of 2016-17 as against $7.1 billion (1.4 per cent of GDP) in the same period of 2015-16 and $ 3.4 billion (0.6 per cent of GDP) in the preceding quarter. Despite a slightly lower trade deficit on a year-on-year (y-o-y) basis, the CAD widened primarily on account of a decline in net invisibles receipts, the Reserve Bank of India said.
“Net services receipts moderated on a y-o-y basis, primarily owing to the fall in earnings from software, financial services and charges for intellectual property rights. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $15.2 billion, having declined by 3.8 per cent from their level a year ago,” it said.
Reflecting the redemption of FCNR (B) deposits, non-resident Indian (NRI) deposits declined by $18.5 billion in Q3 of 2016-17 as against an inflow of $ 1.6 billion a year ago. In the financial account, net foreign direct investment at $9.8 billion in Q3 of 2016-17 was marginally lower than its level a year ago. “There has been net outflow of portfolio investment to the tune of $11.3 billion as against net inflow of $0.6 billion in Q3 of last year; portfolio outflows occurred in both equity and debt segments,” the RBI said.
In Q3 of 2016-17, foreign exchange reserves (on BoP basis) declined by $1.2 billion as against an increase of $ 4.1 billion in Q3 of last year. On a cumulative basis, the CAD narrowed to 0.7 per cent of GDP in April-December 2016 from 1.4 per cent in the corresponding period of 2015-16 on the back of trade deficit contraction.
According to the RBI, India’s trade deficit narrowed to $82.8 billion in April-December 2016 from $105.3 billion in April-December 2015. “Net invisible receipts were lower, mainly due to moderation in software exports and net private transfers and higher outgo on account of primary income (profit, interest and dividends),” it said. Net FDI inflows during April-December 2016 ($30.6 billion) rose by 12.3 per cent over the level during the corresponding period of 2015-16.
Portfolio investment recorded a net outflow of $3.2 billion during April-December 2016 as compared with $3 billion a year ago. In April-December 2016, there was an accretion of $14.2 billion to the foreign exchange reserves, the RBI said.
Aditi Nayar, Principal Economist, ICRA, said: “The current account deficit for Q3 FY2017 provided a positive surprise, with the size of the deficit appreciably smaller than expected, despite the pressure exerted by higher gold imports and crude oil prices. This is partly on account of a larger services trade surplus than what had been signaled by the monthly data released previously. Moreover, the services trade surplus stood at a 4-quarter high in Q3 FY2017, which is encouraging in light of growing concerns related to global headwinds.”
“The continued decline in the secondary income balance recorded over the previous four quarters, was arrested in Q3 FY2017, with the net balance remaining at $13.9 billion in line with Q2 FY2017. The sustainability of this trend would take a cue from factors such as crude oil prices, which have weakened after a spike in the first two months of the quarter,” Nayar said.