India’s CAD widens to 2.9% of GDP in Q2FY19 on higher trade deficit

10 Dec 2018 Evaluate

Raising concerns over India’s fiscal position, the Reserve Bank of India (RBI) in its preliminary balance of payments (BoP) data has showed that the country’s current account deficit (CAD) widened to 2.9% of Gross Domestic Product (GDP) in the July-September quarter (Q2) of the current fiscal year as compared to 1.1% in the year-ago period. It added that CAD expanded mainly due to a large trade deficit.

According to the data, the CAD, or the difference between outflow and inflow of foreign exchange in the country's current account, was $19.1 billion during the quarter ended September 30, 2018, higher as compared to $6.9 billion or 1.1% of GDP in Q2FY18. The CAD stood at $15.9 billion (2.4% of GDP) in the April-June quarter (Q1). In first half of 2018-19 (H1FY19), the CAD has increased to 2.7% of GDP from 1.8% in the corresponding period of 2017-18 on the back of widening of the trade deficit.

The Central Bank said the widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit at $50 billion as compared to $32.5 billion a year ago. The data also revealed that net services receipts increased by 10.2% on a y-o-y basis, mainly on the back of a rise in net earnings from software and financial services. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $20.9 billion during the quarter, increasing by 19.8% from their level a year ago. In the financial account, net foreign direct investment at $7.9 billion in Q2FY19 moderated from $12.4 billion in the similar period of last fiscal.

RBI said portfolio investment recorded net outflow of $1.6 billion as compared to an inflow of $2.1 billion in the second quarter last year on account of net sales in both the debt and equity markets. Further, net receipts on account of non-resident deposits increased to $3.3 billion in Q2FY19 from $0.7 billion a year ago. In July-September this fiscal, there was a depletion of $1.9 billion of the foreign exchange reserves (on BoP basis) as against an accretion of $9.5 billion in the year ago period.

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