India’s current account deficit increased sharply to 2.4% of GDP in first quarter, from 0.1 percent a year ago, the Reserve Bank of India (RBI) said on Friday. This is the highest in four years as imports surged. In July the trade shortfall was $11.45 billion. In the first quarter of the last financial year, the current account deficit was 0.1 percent or $401 million. This is the highest level since the June quarter of 2013.
Key Features of India’s BoP in Q1 of 2017-18:
1. India’s current account deficit (CAD) at US$ 14.3 billion (2.4 per cent of GDP) in Q1 of 2017-18 increased sharply from US$ 0.4 billion (0.1 per cent of GDP) in Q1 of 2016 -17 and US$ 3.4 billion (0.6 per cent of GDP) in Q4 of 2016-17.
2. The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit (US$ 41.2 billion) brought about by a larger increase in merchandise imports relative to exports.
3. Net services receipts increased by 15.7 per cent on a y-o-y basis mainly on the back of a rise in net earnings from travel, construction and other business services.
4. Private transfer receipts, mainly representing remittances by Indians employed overseas, at US$ 16.1 billion increased by 5.3 per cent over the corresponding quarter of previous year.
5. In the financial account, net foreign direct investment at US$ 7.2 billion in Q1 of 2017-18 almost doubled from its level in Q1 of 2016-17.
6. Net portfolio investment recorded substantial inflow of US$ 12.5 billion in Q1 of 2017-18, primarily in the debt segment, as compared with US$ 2.1 billion in Q1 of last year.
7. Net receipts on account of non-resident deposits amounted to US$ 1.2 billion in Q1 of 2017-18; this was lower than US$ 1.4 billion a year ago.
8. In Q1 of 2017-18, there was an accretion of US$ 11.4 billion to the foreign exchange reserves (on BoP basis) as compared with US$ 7.0 billion in Q1 of 2016-17 and US$ 7.3 billion in the preceding quarter.
9. Merchandise exports for August came in at $23.82 billion, up 10.29 percent year-on-year.
10. Goods imports last month were of $35.46 billion, up 21.02 percent from a year ago.
Aditi Nayar, Principal Economist of ICRA says, “ICRA said that the sharp surge in the current account deficit in Q1 FY2018 relative to Q1 FY2017 comes as no surprise, with the spike in gold imports prior to the introduction of GST responsible for half of this uptick. Moreover, the lagged impact of the INR appreciation was partly responsible for a faster rise in non-oil non-gold imports relative to exports, bloating the size of the merchandise trade deficit. However, the healthy 15% increase in the services trade surplus, modest increase in secondary income inflows and decline in primary income outflows shielded the current account deficit from an even larger deterioration. With the size of the current account deficit in Q1 FY2018 nearly as high as the FY2017 level of US$15 billion, ICRA expects the FY2018 deficit to double to around US$30-32 billion (1.2-1.3% of GDP). Nevertheless, this should be adequately financed through a resumption in NRI deposits, as well as healthy FDI and FII inflows.”
“It appears the last month’s transition to GST had affected some export sectors, but that is expected to normalise going ahead,” said A Prasanna, economist at ICICI Securities Primary Dealership to Reuters.