CAD eases due to lower trade deficit and a rise in net services receipts
RBI says the CAD narrows to 1% of GDP in April-Dec of 2019-20 from 2.6% a year ago
India's current account deficit almost got wiped out in the December quarter standing at just $1.4 billion due to lower trade deficit and a rise in net services receipts, according to data released by Reserve Bank of India on Thursday.
CAD eased to 0.2% of GDP in December quarter from 0.9% of GDP in the September quarter.
Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $20.6 billion, up by 9% from their level a year ago. In the financial account, net foreign direct investment at $10.0 billion was higher than $7.3 billion in Q3 of 2018-19. Foreign portfolio investment recorded net inflow of $7.8 billion – as against an outflow of $2.1 billion in Q3 of 2018-19 – on account of net purchases in both the debt and equity market.
"The CAD narrowed to 1% of GDP in April-December of 2019-20 from 2.6% in April-December of 2018-19 on the back of a reduction in the trade deficit which shrank to $118.9 billion in April-December 2019-20 from $145.1 billion in April-December of 2018-19," RBI said.
UBS in a report released on Thursday said since India is a net oil importer with inelastic demand, movement in crude oil
prices tends to have an important bearing on its macro stability risks including current account deficit.
"Looking at India's oil price sensitivity, we calculate a $10/bbl average fall in global crude oil prices narrows India's CAD by $15bn (0.5% of GDP) and fiscal deficit by 0.1% of GDP if domestic fuel prices are unchanged," it added.
Brent crude futures dropped 5.5% to 33.8 per barrel on Thursday after Saudi Arabia and the United Arab Emirates announced plans to boost production capacity.