The current account deficit increased to $3.45 billion, or 0.6% of the gross domestic product (GDP) for the fourth quarter of FY17 from 0.1% of the GDP in the year-ago quarter due to a widening of the merchandise trade deficit. However, on a sequential basis, the CAD narrowed in Q4FY17 from $8 billion or 1.4% of the GDP in the previous quarter which saw higher goods trade deficit and lower private transfers. While the CAD in the final quarter of last fiscal was benign, a big sequential jump in net portfolio inflows – $10.8 billion in Q4FY17, as against (-)$11.3 billion in the previous quarter – and an increase in short-term loans boosted the capital account. Both equity and debt portfolio inflows were robust in Q4FY17, with net inflows of $6.4 billion and $4.7 billion, respectively. While in the fourth quarter, net FDI moderated to $5 billion from $9.7 billion in the third quarter, the surplus in the capital account in Q4FY17 was still a robust $10.4 billion as against $6 billion in the previous quarter and around $3.5 billion in Q4FY16. Therefore, on a balance of payments basis, in Q4 of last fiscal, there was an accretion of $7.3 billion to the foreign exchange reserves, compared with depletion of $1.2 billion in the previous quarter and an increase of $3.3 billion in Q4FY16.
“On a cumulative basis, the CAD narrowed to 0.7% of GDP ($15.2 billion) in FY17 from 1.1% in FY16 on the back of the contraction in the trade deficit,” the RBI said in a statement. Merchandise trade deficit narrowed to $112.4 billion in FY17 from $130 billion in the previous financial year. In FY17, there was an accretion of $21.6 billion to the foreign exchange reserves as compared $ 17.9 billion in FY16. “Net invisible receipts were lower, mainly due to moderation in software exports and net private transfer receipts, and higher outgo on account of primary income (profit, interest and dividends),” the RBI said. Net FDI inflows in FY17 at $35.6 billion moderated marginally from $36.0 billion in FY16. Portfolio investment recorded a net inflow of $7.6 billion in 2016-17 as against an outflow of $ 4.5 billion a year ago.