India’s current account deficit (CAD), the difference between the value of all imports and the value of all exports, has improved significantly in the Second Quarter (July-September) of 2016-17. India’s CAD narrowed to $3.4 billion or 0.6 per cent of GDP in Q2 of 2016-17, significantly lower than $8.5 billion or 1.7 per cent of GDP in Q2 of 2015-16, but higher than $0.3 billion or 0.1 per cent of GDP in the preceding quarter. The contraction in the CAD on year-on-year basis was mainly on account of a lower trade deficit of $25.6 billion brought about by a larger decline in merchandise imports relative to exports.
As per the data released by Reserve Bank of India (RBI), during April-September 2016, CAD had narrowed to 0.3 per cent of GDP from 1.5 per cent in April-September 2015, on the back of the contraction in the trade deficit. India’s trade deficit narrowed to $49.5 billion in 2016-17 from $ 71.3 billion in 2015-16. Though, it said that private transfer receipts, mainly representing remittances by Indians employed overseas registered a decline of 10.7 percent amounting to $ 15.2 billion, from the previous level a year ago.
In the year 2016-17, net services receipts moderated on annual basis, mainly due to the fall in earnings from software, financial services and charges for intellectual property rights. Net FDI inflows during 6 months rose by more than 28.8 percent over the level during the corresponding period of the previous year. On the other hand, portfolio investment recorded a net inflow of $ 8.2 billion in Q2 of 2016-17 as against $ 3.5 billion net outflow in the year-ago period.
Meanwhile, in the financial account, net inflows of both foreign direct investment and portfolio investment were significantly higher in Q2 on year-on-year basis. Non-resident Indian (NRI) deposits declined to $ 2.1 billion in Q2 of 2016-17 from $4.2 billion in Q2 of 2015-16. During the period ended September, there was an accretion of USD 15.5 billion to foreign exchange reserves.