CAD widens to $48.7 billion in FY18 as trade deficit rises

14 Jun 2018 Evaluate

India’s Current account deficit (CAD), the gap between imports and exports of goods & services, has jumped over three times to $48.7 billion, or 1.9% of the country’s GDP, in the last financial year (FY18) from $14.4 billion or 0.6% in the previous year on account of higher trade deficit ($41.6 billion) brought about by a larger increase in merchandise imports relative to exports. For Q4 of FY18, CAD rose to $13.0 billion or 1.9% of GDP, up from $2.6 billion or 0.4% of GDP in Q4 of FY17. However, it moderated marginally from $13.7 billion or 2.1% of GDP in the Q3 of FY18.

The country’s trade deficit increased to $160 billion in financial year 2018 from $112.4 billion in last financial year. During last quarter of FY18, trade deficit rose to $41.6 billion from $29.7 billion, a year ago. Crude oil accounts for a fourth of India’s merchandise imports and crude prices increased 5% during the quarter to touch $68.4 per barrel by end of March.

However, the higher imports were partly offset by an increase in net invisible receipts, which were higher in FY18, mainly on account of increase in net services earnings and private transfer receipts. Services receipts increased by 8.8% on the back of a rise in software services and other business services. Remittances by Indians amounted to $18.1 billion, up 15.1% from their level a year ago.

On the capital account front, gross foreign direct investment inflows to India increased to $61 billion in the FY18 from $60.2 billion in FY17. However, with investors cashing out, net FDI inflows in FY18 moderated to $30.3 billion from $35.6 billion in FY17.

In Q4 of FY18, Foreign portfolio investment recorded net inflow of $2.3 billion compared with an inflow of $10.8 billion in Q4 last year on account of moderation in net purchases in both the debt and equity markets. While inflows through NRI deposits amounted to $4.6 billion in Q4 of 2017-18 as compared with $2.7 billion a year ago.

Capital account surplus amounted to $25 billion during the quarter compared to $10.4billion in the same period last year. The overall balance of payments ended in a surplus of $13.2 billion during the quarter, compared to $7.3 billion the same period a year ago. For FY18, the overall balance of payments surplus amounted to $41 billion compared to a surplus of $21.5 billion in FY17.

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