India’s current account deficit narrowed more than estimated helped by a smaller goods trade gap, burnishing the country’s external finances and providing further support for the rupee.
The shortfall was $3.4 billion January-March, or 0.6 percent of gross domestic product, the Reserve Bank of India said in a statement in Mumbai on Thursday That compares with a median $6.3 billion deficit predicted in a Bloomberg survey of 16 economists The gap is smaller than the previous quarter’s $7.9 billion (1.4 percent of GDP) but higher than the $0.3 billion in the same quarter in the previous year (0.1 percent of GDP).
The surprisingly strong data could support the rupee. The local currency hit its highest level since August 2015 last month amid robust inflows into India. The benchmark S&P BSE Sensex Index of Indian stocks has set multiple records this year, surging more than 15 percent, as both foreign and local investors bet that an election victory in India’s most populous state would allow Prime Minister Narendra Modi to push through his pro-business agenda.
Nevertheless, fears of more protectionists policies in the west, which could hit India’s services exports along with an expected shrinking in the Federal Reserve’s balance sheet that could hurt foreign capital inflows, are risks which could widen India’s current account gap, analysts say. Separately, India’s trade deficit widened to $13.84 billion in May from $13.24 billion in April, with imports rising 33 percent year-on-year and exports rising 8.3 percent, according to figures from the director general of commercial intelligence and statistics.
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Net services receipts were steady at $17.6 billion from the previous quarter — and slightly higher from the previous year — mainly due to higher earnings from travel, transport, construction and other business services, the RBI said Remittances remained almost unchanged at $15.7 billion from the previous year; while net foreign direct investments moderated to $5 billion in the January-March quarter The goods trade deficit narrowed to $29.7 billion from $33.3 billion the previous quarter but widened from 24.8 billion the previous year Gross FDI inflows to India in 2016/17 was at $60.2 billion, up from $55.6 billion in 2015/16.