India’s CAD narrows to 0.1 per cent of GDP in Q4 2015-16

17 Jun 2016 Evaluate

Giving a big relief to the government, India’s current account deficit (CAD), difference between the value of all imports and the value of all exports, narrowed to its lowest level in seven years in the quarter ended March 2015-16. India’s current account deficit had narrowed to $0.3 billion or 0.1 per cent of GDP in Q4 of 2015-16, significantly lower than $7.1 billion or 1.3 per cent of GDP in third quarter of 2015-16 and marginally lower than $0.7 billion 0.1 per cent of GDP in the same period last fiscal. The contraction in CAD was primarily on account of a lower trade deficit $24.8 billion than in Q4 of last year $31.6 billion and $34.0 billion in the preceding quarter.

As per the data released by Reserve Bank of India (RBI), for the entire 2015-16 fiscal, CAD stood at 22.1 billion or 1.1 per cent of the GDP as against 26.8 billion or 1.8 per cent for 2014-15, on the back of contraction in the trade deficit. India’s trade deficit narrowed to $130.1 billion in 2015-16 from $144.9 billion in 2014-15.

Meanwhile, the Balance of Payments (BoP) stayed in positive territory with accretion of $3.3 billion to India's Foreign exchange reserves in Q4 2015-16. The overall BoP during the fiscal FY16 moderated to $17.9 billion from $ 61.06 billion in 2014-15. During the fiscal, there was decline in net invisible receipts, reflecting moderation in both net services earnings and private transfer receipts.

In the year 2015-16, Net invisible receipts declined, primarily reflecting moderation in both net services earnings and private transfer receipts. Net FDI inflows during 2015-16 $36.0 billion rose sharply by 15.3 per cent over the level in 2014-15. Portfolio investment, however, recorded a net outflow $4.5 billion in 2015-16 as against a net inflow of $40.9 billion last year. In 2015-16, there was an accretion of $17.9 billion to foreign exchange reserves as compared with $61.4 billion in 2014-15.

Economic affairs secretary Shaktikanta Das has said that a CAD at 1.1% of GDP is yet another robust macroeconomic indicator and hoped that FDI inflows in the current fiscal will top 15.3 per cent rise in 2015-16 on the back of reforms and liberalisation of FDI norms announced in November 2015.

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