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  3. CAD narrows down to 1.6% in second quarter

CAD narrows down to 1.6% in second quarter

23 Dec 2015 Evaluate

Giving some respite to the government, the current account deficit (CAD) narrowed to 1.6 percent of GDP at $ 8.2 billion in the second quarter ended September, compared to $10.9 billion  or 2.2 percent of GDP reported in the same period last year, mainly due to lower trade deficit. However, the CAD was higher than the first quarter’s $6.2 billion or 1.2 percent of GDP, due to a drop in export of goods. Earnings from export of goods dropped to $67 billion in Q2FY16 from $68 billion in Q1FY16.

During the first 6 months of the current fiscal, the CAD narrowed to 1.4 percent of GDP at $71.6 billion from 1.8 percent $74.7 billion in the same period a year ago on contraction in the trade deficit and a marginal improvement in net invisibles. However, RBI in the second quarterly balance of payments data release has said that after a sharp pick up in the first quarter, net foreign direct investment (FDI) moderated in second quarter of 2015-16.

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

The overall balance of payments (BoP) position for the second quarter - which includes trade as well as capital flows - turned marginally negative as there was a drawdown of $900 million from the foreign exchange reserves following sales by foreign institutional investors. The BoP for the first six months continued to remain positive with total accretion of $10.6 billion to forex reserves, which was lower than $18 billion in the first half of FY15.

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