India’s CAD narrows to 0.1 per cent of GDP in Q1 of 2016-17

India’s current account deficit (CAD), difference between the value of all imports and the value of all exports, has improved significantly in the quarter ended June 2016-17 to decades low. India’s current account deficit had narrowed to $ 0.3 billion or 0.1 per cent of GDP in the June quarter, significantly lower than $ 6.1 billion or 1.2 per cent of GDP in Q1 of 2015-16. The contraction in the CAD was primarily on account of a lower trade deficit $ 23.8 billion than in Q1 of last year $ 34.2 billion and $ 24.8 billion in the preceding quarter, supported by slump in commodity prices.

As per the data released by Reserve Bank of India (RBI), India’s trade deficit narrowed to $ 23.8 billion in 2016-17 from $34.2 billion in 2015-16. The Balance of Payments (BoP) remained in surplus but shrank 40% to $ 6.9 billion from $ 11.4 billion in the same period a year ago due to decline in foreign direct investments. The remittances declined, FDI has moderated and capital inflows were not that strong, however in second quarter the inflows have been strong.

In the year 2016-17, net services receipts declined to $ 15.77 billion from $ 17.75 billion a year ago due to a fall in net earnings on account of travel, financial services and other business services.  Net FDI inflows during the 2016-17 stood at $ 4.1 billion from $10.0 billion in Q1 of 2015-16. On the other hand, portfolio investment, recorded a net inflow of $ 2.1 billion in Q1 of 2016-17 as against a marginal $ 50 million net outflow in the year-ago period and an outflow of $ 1.5 billion in the preceding quarter, primarily reflecting net inflow in the equity component.