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  3. Current account deficit narrows to 1.7% of GDP in Q1FY15

Current account deficit narrows to 1.7% of GDP in Q1FY15

02 Sep 2014 Evaluate

Easing pressure on country’s external sector as well as domestic currency, India’s current account deficit (CAD) narrowed sharply to $7.8 billion (1.7% of GDP) in the first quarter of current fiscal from $21.8 billion (4.8% of GDP) in Q1FY14. The lower CAD was primarily on account of a contraction in trade deficit driven by both a rise in exports and a decline in imports. However, the CAD in Q1FY15 was higher than $1.2 billion (0.2 per cent of GDP) recorded in Q4FY14.

Merchandise exports grew by 10.6% y-o-y to $81.7 billion in Q1FY15 as against a decline of 1.5% in Q1FY14. Conversely, merchandise imports declined by 6.5% to $116.4 billion as against an increase of 4.7% in Q1FY14 primarily led by a steep drop of 57.2% in gold imports, which amounted to $7 billion in the reported quarter, significantly lower than $16.5 billion in the same quarter of previous fiscal. Consequently, trade deficit contracted by about 31.4% to $34.6 billion in Q1FY15 from $50.5 billion in Q1FY14.

Net services receipts recorded a growth of 1.2% y-o-y to $17.1 billion in Q1FY15 on account of higher exports of services. However, net outflow on account of primary income (profit, dividend and interest) recorded at $6.7 billion was higher than that of $4.8 billion in Q1FY14 as well as in the preceding quarter at $6.4 billion. In Q1 FY15, gross private transfer receipts at $17.5 billion were marginally lower as compared to Q1FY14, which witnessed a significant increase of around 6% over the preceding quarter due to rupee depreciation. Net portfolio investment inflow was recorded at $12.4 billion in Q1FY15 as against an outflow of $0.2 billion in Q1FY14.

The significant curtailing of country’s CAD has eased pressure on macro-economic front as it is a major macro-economic problem that creates huge volatility in the domestic equity markets and currency. The improvement in CAD is likely to continue in the new fiscal year mainly on the back of contracting trade deficit and increasing foreign exchange reserves.

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