Current account deficit narrows to 2% of GDP in Q1FY20: RBI

New Delhi: India’s current account deficit (CAD) narrowed to $14.3 billion or 2% of Gross Domestic Product (GDP) during April-June quarter from 2.3% during the same period a year ago, data released by the Reserve Bank of India showed.

However, on a sequential basis, CAD widened from $4.6 billion or 0.7% of GDP.

“The CAD contracted on a year-on-year (y-o-y) basis, primarily on account of higher invisible receipts at $31.9 billion as compared with $29.9 billion a year ago,” the RBI said in a release on Monday.

CAD is one of the key indicators of an economy’s health and measures the difference between the value of the goods and services a country imports and the value of its exports.

Net services receipts rose 7.3% year-on-year in quarter ended June due to rise in net earnings from travel, financial services and telecommunications, computer and information services. Private transfer receipts, an indicator of remittances by Indians employed overseas, grew 6.2% on-year to $19.9 billion.

“In a positive surprise, the current account deficit in Q1FY20 (April-June) printed modestly lower than expected, on the back of smaller than anticipated outflows of primary income. Additionally, healthy growth in the surplus of services and secondary income, as well as lower crude oil prices helped to restrain the size of the current account deficit in Q1 FY2020 (April-June), despite a sharp increase in gold imports,” Aditi Nayar, Principal Economist, ICRA said.

Net foreign direct investment was $13.9 billion in April-June as compared with $9.6 billion during the same period a year ago. Net inflow of foreign portfolio investment was $4.8 billion in the quarter ended June as compared to $8.1 billion a year ago, due to net purchases in both debt and equity markets, the RBI said.

“Based on the available trends for July-August 2019, we expect the current account deficit to decline substantially to $10-11 billion in Q2FY20 (July-September) from $19 billion in Q2 FY2019 (July-September), on the back of moderate crude oil prices, a weak appetite for gold imports at current prices as well as subdued domestic demand,” Nayar said.