India’s current account deficit in Q2 at 0.6% of GDP: RBI
New Delhi: India posted a current account deficit (CAD) of $3.4 billion, or 0.6% of gross domestic product (GDP), in the July-September quarter, data released by the Reserve Bank of India (RBI) showed.
The CAD in the second quarter was higher than the first quarter (April-June) CAD of 0.1% of GDP but lower than the same quarter (July-September) a year ago at 1.7% of GDP. The contraction on a year-on-year (y-o-y) basis was primarily on account of a lower trade deficit ($25.6 billion) brought about by a larger decline in merchandise imports relative to exports.
India’s merchandise exports and imports turned positive in September and October after consistently declining since December 2014—barring in June—because of sluggish global demand and low commodity prices.
Net services receipts moderated on a y-o-y basis, primarily because of a fall in earnings from software, financial services and charges for intellectual property rights.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $15.2 billion, having declined by 10.7% from their level a year ago.
RBI in its monetary policy review earlier this month said CAD is likely to remain muted, notwithstanding some loss of remittances and software exports under the “so-called invisibles category,” which refers to the trade that is not tangible. However, rising crude oil prices may put some pressure on trade deficit. Crude prices reached an 18-month high at $56.44 per barrel on Monday after members of the Organization of the Petroleum Exporting Countries and oil producers outside the group led by Russia agreed to reduce output almost by 2% of global oil supply.
On a cumulative basis, CAD narrowed to 0.3% of GDP in the first half (April-September) of 2016-17 from 1.5% during the same period a year ago as trade deficit narrowed to $49.5 billion from $71.3 billion during the comparable period.
Portfolio investment recorded a net inflow of $8.2 billion during the first half (April-September) as against a net outflow of $3.5 billion a year ago. A widely anticipated Fed interest rate hike in the US may lead to further outflow of portfolio investments from India though analysts say it is unlikely to match the taper tantrum of 2013 which roiled Indian markets.