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  3. CAD narrows to 1.3 percent of GDP in third quarter of the fiscal

CAD narrows to 1.3 percent of GDP in third quarter of the fiscal

22 Mar 2016 Evaluate

Giving some relief to the government, India's current account deficit (CAD), which mirrors the difference between domestic savings and domestic investment, narrowed to 1.3 percent of GDP in third quarter of the fiscal as against 1.5 percent in the same period last year, mainly on account of lower trade deficit. The trade deficit was at $ 34.0 billion, lower than $ 38.6 billion in Q3 of last year and $ 37.4 billion in the preceding quarter.

Reserve Bank of India (RBI), while releasing the Balance of Payments (BoP) data for October-December quarter of 2015-16, said that India's CAD at $7.1 billion or 1.3 percent of GDP in Q3 of 2015-16 was lower than $ 7.7 billion or 1.5 percent of GDP in Q3 of 2014-15 and $ 8.7 billion or 1.7 percent of GDP in the preceding quarter.

The central bank further said that private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $15.8 billion, a decline from their level in the preceding quarter as well as from a year ago. After moderating in the second quarter to $6.6 billion, net foreign direct investment (FDI) again picked up and stood at $10.1 billion in the third quarter. Against a sharp drop in net outflow in portfolio investments at $3.5 billion in the preceding quarter, net outflow was just $0.2 billion in the December quarter. Non-resident Indian (NRI) deposits moderated significantly in the third quarter of 2015-16 to $5.9 billion over the preceding quarter’s $4.2 billion.

On a cumulative basis, the CAD narrowed to 1.4 percent of GDP in April-December from 1.7 percent in the corresponding period of 2014-15, on the back of the contraction in the trade deficit. India’s trade deficit narrowed to $ 105.6 billion in April-December 2015 from $ 113.4 billion during the same period of 2014-15. RBI stated that in April-December 2015, there was an accretion of $ 14.6 billion to foreign exchange reserves (on a BoP basis) as compared with $ 31.3 billion in the corresponding period of 2014-15.

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