Current Account Deficit soars in Q4 but narrows for the fiscal 2017

16 Jun 2017 Evaluate

Higher trade deficit which stood at $29.7 billion, brought about by a larger increase in merchandise imports relative to exports led to surge in current account deficit (CAD) which soared to $ 3.4 billion, or 0.6 per cent of gross domestic product (GDP), in the fourth quarter of fiscal 2017, from $ 0.3 billion a year ago. However, as per Reserve Bank of India’s data, despite a higher merchandise import bill and almost flat growth in services income as both software services income as well as remittances by the overseas Indians were at the same level as previous year, India’s external sector balance sheet remained in the comfort zone of less than 2% of GDP during the quarter ended March’17. On a sequential basis, the gap between forex earnings and expenses, narrowed from $ 8 billion in the third quarter of FY17.

In the fourth quarter, net foreign direct investment moderated to $5 billion. Net portfolio investment recorded substantial inflow of $ 10.8 billion in both equity and debt segment, as against net outflow of $ 1.5 billion in the same quarter of FY16. Capital account surplus more than doubled to $ 10.3 billion from $ 3.9 billion in the same period a year ago on account of strong portfolio flows during the quarter.

For the full fiscal 2017, CAD narrowed to 0.7 per cent of GDP from 1.1 per cent in the year ago period on the back of a contraction in trade deficit. In the previous fiscal, trade deficit narrowed to $ 112.4 billion from $ 130.1 billion in 2015-16. In FY17, gross FDI inflows stood at $ 60.2 billion, higher than $55.6 billion in 2015-16, while net FDI inflows in 2016-17 was at $ 35.6 billion as against $ 36 billion in 2015-16. Portfolio investment recorded a net inflow of $ 7.6 billion in 2016-17 as against an outflow of $ 4.5 billion a year ago. In fiscal 2017, there was an accretion of $ 21.6 billion to the foreign exchange reserves as compared with $ 17.9 billion in 2015-16.

Balance of payments for the full financial year stood at $21.6 billion, while for Q4 the same stood at $7.31 billion. Private transfer receipts, mainly representing remittances by Indians employed overseas, at $ 15.7 billion remained almost at the same level as in the preceding year.

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