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Q3 current account deficit narrows; reaches 1.6% of GDP

11 Mar 2015 Evaluate

In an encouraging development, India's current account deficit reached $8.2 billion, or 1.6% of gross domestic product, in the October-December quarter, lower than the previous quarter but double from a year earlier. The current account deficit had reached $4.2 billion or 0.9% of GDP a year earlier, while it reached $10.1 billion or 2.0% of GDP in the previous quarter. The reduction in Q3FY15 CAD was primarily on account of net exports of services which picked up in q-o-q terms on the back of an improvement in net earnings through travel and software services, and lower net outflows under primary income (profit, dividend and interest).

However, balance of payment (BoP) stood in surplus for fifth consecutive quarter at $13.2 billion during October- December quarter. It was also almost double the $6.9 billion surplus in the previous quarter. This considerable improvement on a y-o-y basis on the back of a higher growth in merchandise exports and a marginal rise in merchandise imports, with a sizable increase in net financial flows financing the CAD and enabling a large build-up of reserves.

The merchandise trade deficit at $39.2 billion widened on a q-o-q basis on account of a larger decline in merchandise exports (7.3 per cent) than in merchandise imports (4.5 per cent); in terms of y-o-y changes too, the trade deficit in Q3 2014-15 widened due to a decline in exports (1.0 per cent), while imports increased (4.5 per cent).

On a BoP basis, a net accretion of $ 13.2 billion to India’s foreign exchange reserves in Q3 of 2014-15 was reported, almost double the accretion in the preceding quarter, but was lower than the same quarter of the previous year, bolstered by special non-resident and banks’ overseas borrowings.

CAD during the first nine months of the fiscal, shrank to $26.2 billion or 1.7 percent of GDP against $ 31.1 billion or 2.3 percent of GDP during the same period last fiscal. The trade deficit narrowed to $ 112.5 billion in the April-December period from $ 116.9 billion in the same period year-ago. For the first three quarters, the total accretion to the forex kitty was of $31.3 billion against a $ 8.4 billion in the same three quarters of previous fiscal.

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