CAD narrows to 1.2% of GDP in Q1 on higher services exports
India’s current account deficit ( CAD) — the difference between inflow and outflow of a foreign currency — narrowed to $6.2 billion, or 1.2% of gross domestic product ( GDP), during the April-June quarter of 2015-16 against $ 7.8 billion, or 1.6%, in the corresponding period of the previous fiscal. .
Contraction in the merchandise trade deficit at $34.2 billion during the April-June quarter contributed to the reduction in CAD. Besides, higher net earnings from services exports and lower outflows of dividend and interest payments also helped.
Reacting to the improvement in CAD, economic affairs secretary Shaktikanta Das tweeted, “The first quarter CAD at 1.2% is better than last year. Have to remain watchful.”
“In the financial account, net inflows of foreign direct investment were higher on a year-onyear basis. However, portfolio investments declined sharply,” the Reserve Bank of India said in its report on Friday.
“We are benefiting a lot from the sharp fall in global fuel and commodity prices though exports have fallen. We hope to remain in this zone for the full year,” DK Joshi, chief economist, Crisil, told HT.
According to rating agency ICRA, a lower CAD in 2015-16 as compared to the last fiscal year could bolster the Indian rupee in the event of a drop in sentiment related to emerging market currencies once the US Fed hikes interest rates.
The recently announced gold bond scheme by the government is also expected to reduce the demand for physical gold by shifting part of this investment into bonds.
CAD had touched a record high of $ 88.2 billion, or 4.8% of GDP, in 2012- 13, with gold imports being one of the key reasons. Following it, the government took several steps, including increasing import duties to 10%, to keep CAD under control.