Wednesday, December 23, 2015

CAD dips to 1.6% of GDP in Q2

A lower trade deficit helped India bring down its current account deficit (CAD) to 1.6 per cent of GDP in the July-September quarter of 2015 against 2.2 per cent a year ago.

The CAD in the reporting quarter, however, was higher than the preceding quarter’s 1.2 per cent.

In absolute terms, the CAD in the reporting quarter and the year-ago period were at $8.2 billion and $10.9 billion, respectively. In the April-June 2015 period, the CAD was at $6.1 billion.

CAD arises when a country's total import of goods, services and transfers’ is greater than exports.

A higher CAD usually leads to a depreciation of the country’s currency. This, in turn, can trigger inflation through the import channel.

The trade deficit in the quarter was at $37.4 billion, against $39.7 billion in the year-ago period. The deficit was at $34.2 billion in the preceding quarter.

On a cumulative basis, the CAD narrowed to 1.4 per cent of GDP in the first half (H1) of 2015-16 from 1.8 per cent in the year ago period on the back of contraction in the trade deficit and a marginal improvement in net invisibles.

India’s trade deficit narrowed to $71.6 billion in the first-half of 2015-16 from $74.7 billion in the first-half of 2014-15, according to RBI’s report on “Developments in India’s Balance of Payments during the Second Quarter.”

In the reporting quarter, although net services receipts moderated marginally on a year-on-year basis largely due to fall in export receipts in transport, insurance and pension services, there has been some improvement over the preceding quarter, the RBI said.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $16.5 billion, a marginal decline from their level in the preceding as well as the corresponding quarter. After a sharp pick up in April-June quarter, net foreign direct investment moderated in July-September quarter of 2015-16. The net FDI in the reporting quarter was at $6.5 billion, against $10.2 billion in the preceding quarter.

There has been net outflow of portfolio investment to the tune of $6.5 billion as against net inflow of $9.8 billion in Q2 of last year. ; The outflow was more evident in the equity segment.

Non-resident Indian (NRI) deposits, however, increased by 4.0 per cent in Q2 of 2015-16 over the level in Q2 of last year.

The foreign exchange reserves decreased by $0.9 billion in Q2 of 2015-16, against a net accretion of $6.9 billion in the year-ago period.

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