CAD for fiscal 2018 rises to 1.9 per cent on higher trade deficit

According to the central bank, CAD for the quarter ended March 2018 was at $13 bn (1.9 per cent of GDP) as against $2.6 bn (0.4 per cent) in Q4 of 2016 -17, but moderated marginally from $13.7 bn (2.1 per cent of GDP) in the preceding quarter.

By: ENS Economic Bureau | Mumbai | Published: June 14, 2018 1:56:49 am
India surpassed China's growth of 6.8 percent in the January to March quarter. The widening of the CAD was primarily on account of a higher trade deficit (.6 bn) due to an increase in merchandise imports relative to exports.

The country’s current account deficit (CAD) jumped over three times to $48.7 billion, or 1.9 per cent of gross domestic product (GDP), in 2017-18, compared with $14.4 bn, or 0.6 per cent, in the previous financial year, driven by higher trade deficit, the Reserve Bank of India (RBI) has said.

According to the central bank, CAD for the quarter ended March 2018 was at $13 bn (1.9 per cent of GDP) as against $2.6 bn (0.4 per cent) in Q4 of 2016 -17, but moderated marginally from $13.7 bn (2.1 per cent of GDP) in the preceding quarter.

The widening of the CAD was primarily on account of a higher trade deficit ($41.6 bn) brought about by a larger increase in merchandise imports relative to exports. For the full fiscal, trade deficit increased to $160 bn in 2017-18 from $112.4 bn in 2016-17.

In the fourth quarter, net services receipts increased by 8.8 per cent on a y-o-y basis mainly on the back of a rise in net earnings from software services and other business services. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.1 bn, increasing by 15.1 per cent from their level a year ago. In the financial account, net foreign direct investment at $6.4 bn in Q4 of 2017-18 was higher than $5 bn in Q4 of 2016-17.

Gross foreign direct investment rose marginally to $ 61 bn in 2017-18, while there was a sharper moderation on a net basis to $35.6 bn, from $30.3 bn in the year-ago period. However, portfolio flows from investors zoomed to $22.1 bn for FY18 as against $ 7.6 bn in FY17. There was an accretion of $ 43.6 bn to the forex reserves during the fiscal year, the apex bank said.

The full year CAD was driven largely by the increase in Q4 which stood at $ 13 bn.

Portfolio investment declined with an inflow of $2.3 bn in Q4 of 2017-18, against an inflow of $10.8 bn in Q4 last year. However, net receipts on account of non-resident deposits amounted to $4.6 bn in Q4 of 2017-18 as compared with $2.7 bn a year ago. On a balance of payments basis (excluding valuation effects), foreign exchange reserves increased by $43.6 bn during 2017-18 as compared with an increase of $21.6 bn during 2016-17. Foreign exchange reserves in nominal terms (including valuation effects) increased by $54.6 bn during 2017-18 as compared with an accretion of $9.8 bn in the preceding year.

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