Current account deficit widens to 2.1% of GDP

  • India had a fiscal deficit of 3.66 tn in the first two months of this fiscal year, which is 52% of its full-year target
  • January-March CAD is lower due to lower merchandise trade deficit

India’s current account deficit (CAD) widened to $57.2 billion, or 2.1% of GDP, in FY19 from 1.8% a year ago, the Reserve Bank of India (RBI) said on Friday, amid a general slowdown in the economy.

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.

However, in the quarter ended March 2019, the deficit narrowed to 0.7% of the GDP at $4.6 billion, compared with 2.7% or $17.7 billion, in the October-December period.

Net services receipts rose 5.8% year-on-year in January-March due to the rise in net earnings from telecommunications, computer and information services. Private transfer receipts, an indicator of remittances by Indians employed overseas, fell 0.9% year-on-year to $17.9 billion.

Net foreign direct investment remained flat at $6.4 billion in the quarter ended March, compared with the same period last year. Net inflow of foreign portfolio investment was at $9.4 billion in January-March, compared to $2.3 billion in the year-ago period, primarily due to net purchases in the debt and equity market, RBI said.

India also reported a fiscal deficit of 3.66 trillion during the first two months of the current financial year, which is 52% of its full-year target, data released by the controller general of accounts showed. The deficit was 54% of the revised budgeted estimate for the year-ago period.

The Centre has pegged fiscal deficit—the difference between the government’s revenue and expenditure—at 3.4% of the GDP for this fiscal year, the same as in 2018-19.

The bulk of the earmarked expenditure is made in the first few months of a financial year, while revenue collection generally picks up in the latter half of the fiscal.

Data showed that revenue receipts of the government in April-May were at 7.3% of the budget estimate (BE). In the year-ago period, the revenue receipts were at a similar level. However, the capital expenditure was only 14.2% of the BE as compared to 21.3% in the year-ago period.

Total expenditure in April-May stood at 5.12 trillion, or 18.4% of BE. It stood at 19.4% of BE a year ago.

“CAD at 2.1% for FY19 is within safe limit and is not worrisome. The latest quarterly number showed a narrowing of CAD. In the next year it could come down further if oil price remains soft. Our exports have to grow faster than imports," said D.K. Joshi, chief economist at rating agency Crisil.

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