Current account deficit narrows sharply to $300 mn in Q4 on lower trade deficit

The country’s trade deficit narrowed to $130.1 billion last fiscal from $144.9 billion in 2014-15.

By: ENS Economic Bureau | Mumbai | Updated: June 20, 2016 7:23:28 pm
current account deficit, India CAD, indian economy, India trade, Trade deficit, india export, India news The overall Balance of Payment (BoP) during the fiscal moderated to .9 billion from .06 billion in 2014-15.

Coming close to a current account surplus position, India’s current account deficit (CAD) in the January-March quarter narrowed to $300 million, or 0.1 per cent of gross domestic product, from $7.1 billion, or 1.3 per cent of GDP in the previous quarter.

The contraction in CAD in the fourth quarter of the last fiscal was primarily on account of lower trade deficit, which stood at $24.8 billion compared to $31.6 billion in the corresponding quarter a year ago. For the full fiscal 2015-16, CAD stood at $22.1 billion, or 1.1 per cent of GDP, as against $26.9 billion, or 1.8 per cent of GDP, in 2014-15, on the back of contraction in the trade deficit, the Reserve Bank of India said.

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The country’s trade deficit narrowed to $130.1 billion last fiscal from $144.9 billion in 2014-15. The overall Balance of Payment (BoP) during the fiscal moderated to $17.9 billion from $61.06 billion in 2014-15.

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“As compared to the net oil import savings of $29 billion in FY16, the merchandise trade deficit fell by $13 billion, and the current account deficit recorded an even smaller improvement of $5 billion. A fall in the services trade surplus and lower remittances eroded a significant portion of the savings arising from the narrowing of the merchandise trade…,” said Aditi Nayar, senior economist, ICRA. “The decline in the services trade surplus in 2015-16 as compared to the previous year was partly driven by a strengthening of the rupee against a wide basket of currencies through much of 2015. Lower inflow from Indian workers in oil-producing countries is likely to be the chief cause for the decline in remittances in the just-concluded fiscal,” Nayar said.

The CAD is expected to widen modestly from $22 billion in FY16 to $25-30 billion in FY17, nevertheless remaining contained at 1.2-1.3 per cent of GDP. A sustained rise in commodity prices, particularly crude oil would boost the import bill relative to the baseline forecast while simultaneously counteracting the risk posed by lower remittances, particularly from the Middle East, ICRA said.

According to the RBI, during the fiscal, there was decline in net invisible receipts, reflecting moderation in both net services earnings and private transfer receipts. Net FDI inflows during the last fiscal stood at $36 billion, up sharply by 15.3 per cent over the level in 2014-15, the RBI said, adding that portfolio investment recorded a net outflow of $4.5 billion during the fiscal as against a net inflow of $40.9 billion in 2014-15.

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