India current account deficit rises year-on-year as imports jump in Q4
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Mumbai: India’s current account deficit narrowed to 0.6% of gross domestic product (GDP) in the fourth quarter of 2016-17 against 1.4% in the preceding quarter as trade deficit narrowed, according to data released by the Reserve Bank of India (RBI).
In the same quarter (January-March) a year ago, India’s CAD stood at $300 million or 0.1% of GDP.
Separately, commerce ministry data showed India’s trade deficit expanded in May to $13.8 billion as exports growth decelerated to single digit (8.32% to $24 billion) after growing in double digits for three consecutive months while imports expanded 33.1% to $37.8 billion due to a significant jump in gold imports (236.7% to $5 billion).
Federation of Indian Export Organizations (FIEO) president Ganesh Kumar Gupta said the continuous growth in gold and electronics imports and the decline in pharma exports is a cause for concern which needs to be studied and addressed quickly.
On a cumulative basis, CAD narrowed to 0.7% of GDP in 2016-17 from 1.1% in 2015-16 on the back of the contraction in the trade deficit to $112.4 billion in 2016-17 from $130.1 billion in 2015-16.
Aditi Nayar, principal economist at Icra Ltd, said she expects a widening of CAD to $27-32 billion, or 1.1% of GDP in FY18. “Notably, volatility in commodity prices could significantly influence the pace of growth of import and export values. Our baseline expectation is that the merchandise trade deficit would widen to around $122-127 billion in FY18 from $112 billion in 2017. The services trade surplus and remittances are unlikely to improve significantly from the levels in FY17, particularly given the headwinds faced by the information technology sector,” she said.
Workers’ remittances by overseas Indians, after picking up in Q2 at $9 billion, declined for the second consecutive quarter to $8.4 billion. Subdued income conditions in the Gulf region due to the downward spiral in oil prices have kept growth in remittances muted.
In the financial account, net foreign direct investment (FDI) at $5 billion in Q4 of 2016-17 was almost half of $9.7 billion in the Q3 of the same financial year, while portfolio investments saw a reversal in fortune with a net inflow of $10.8 billion in Q4 against net outflow of $11.3 billion in the previous quarter.