1. CAD narrows to 1.2% of GDP, but US dollar inflows fall

CAD narrows to 1.2% of GDP, but US dollar inflows fall

India’s current account deficit (CAD) narrowed to $6.2 billion or 1.2% of gross domestic product (GDP) in April-June of 2015-16, from $7.8 billion or 1.6% of GDP a year ago, data from the Reserve Bank of India (RBI) showed

By: | Updated: September 12, 2015 1:10 AM

India’s current account deficit (CAD) narrowed to $6.2 billion or 1.2% of gross domestic product (GDP) in April-June of 2015-16, from $7.8 billion or 1.6% of GDP a year ago, data from the Reserve Bank of India (RBI) showed.

The merchandise trade deficit stayed virtually flat at $34.2 billion for April-June compared with $34.5 billion in the corresponding quarter the previous year.

Outflows under primary income were $5.6 billion in April-June, lower than the $6.7 billion in the corresponding quarter of the previous year. The country’s balance of payments stood at a surplus of $11.4 billion in the first quarter of this fiscal, unchanged from a year ago, but lower than $30.1 billion seen in the previous quarter.

cad

Gold imports showed no signs of abating and totalled $7.5 billion for the quarter, largely unchanged from a year ago. However, compared with the January-March quarter, when it was $8.5 billion, gold imports have reduced.

The CAD shrank owing to a lower outflow towards primary income which consists of profits, dividend and interest earned by foreign investors from investments in Indian companies and a marginal reduction in the country’s trade gap.

Compared with the January-March quarter, the CAD position has weakened. In January-March, the CAD was 0.2% of GDP at $1.3 billion. The hit on the CAD sequentially has been due to a sharp fall in exports. In April-June, exports totalled $68.02 billion, down from $70.76 billion in January-March.

Exports fell for an eighth straight month through July amid concerns that China’s slowdown will jeopardise global growth.

The RBI forecasts the deficit will stay below 1.5% of GDP in 2015-2016, compared with 1.2% in the April-June period. Holding the deficit at sustainable levels hinges on an export turnaround, the RBI said.

Even as the CAD improved year-on-year, the financial account saw a lower inflow of $6.6 billion owing to portfolio outflows — about$2.6 billion —mainly from the debt market. Global turmoil owing to the Greece debt crisis and worries over a likely rate hike by the US Federal Reserve had foreign investors exiting emerging market assets, including those of India.

External commercial borrowings and bank loans saw larger repayments and therefore led to an outflow of $1.8 billion compared with an inflow of $1.04 billion in the first quarter of the previous year.

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