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Current Account Deficit Narrows
Sep 03, 2014

India’s current account deficit (CAD) narrowed sharply to $7.8 billion (1.7 per cent of gross domestic product) in the first quarter of 2014-15 from $21.8 billion (4.8 per cent of GDP) in the year ago period. However, it was higher than $1.2 billion (0.2 per cent of GDP) in Q4 of 2013-14. The lower CAD was primarily on account of a contraction in trade deficit contributed by both a rise in exports and a decline in imports.

On a Balance of Payments (BoP) basis, merchandise exports, at $81.7 billion, increased by 10.6 per cent in the first quarter of 2014-15 as against a decline of 1.5 per cent in the first quarter of 2013-14. On the other hand, merchandise imports, at $116.4 billion, moderated by 6.5 per cent as against an increase of 4.7 per cent.

The decline in imports was primarily led by a steep drop of 57.2 per cent in gold imports, which amounted to $7 billion, significantly lower than $16.5 billion. But non-gold imports recorded a modest rise of 1.3 per cent as against a decline of 0.6 per cent in the corresponding quarter of last year reflecting some revival in economic activity. As a result, merchandise trade deficit (BoP basis) contracted by about 31.4 per cent to $34.6 billion in the first quarter of 2014-15 from $50.5 billion in the corresponding quarter a year ago. Net services receipts improved marginally on account of higher exports of services. Net services at $17.1 billion recorded a growth of 1.2 per cent in the first quarter of 2014-15.

However, net outflow on account of primary income (profit, dividend and interest) amounting to $6.7 billion was higher than that of $4.8 billion in the first quarter of 2013-14 as well as in the preceding quarter ($6.4 billion).

In the first quarter of 2014-15, gross private transfer receipts at $17.5 billion, however, were marginally lower compared with the corresponding quarter of 2013-14. In fact, in the first quarter of 2013-14, private transfers had shown a significant increase of around 6 per cent over the preceding quarter, possibly responding positively to the rupee depreciation. Foreign direct investment (FDI) and portfolio investment on a net basis recorded inflows.

While net inflow, on account of portfolio investment, was $12.4 billion as against an outflow of $0.2 billion, net FDI inflow was substantially higher at $8.2 billion ($6.5 billion).

Loans (net) availed by deposit-taking corporations (commercial banks) witnessed an outflow of $2.6 billion owing to higher repayments of overseas borrowings and a build-up of their overseas foreign currency assets. Under currency and deposits, net inflows of NRI deposits amounted to $2.4 billion from $5.5 billion.

The amount of loans (net) of other sectors (external commercial borrowings) at $1.7 billion was much higher than $0.9 billion in Q1 of 2013-14. There was a net accretion of $11.2 billion to India’s foreign exchange reserves in Q1 2014-15 as against a drawdown of $0.3 billion in the year ago period.

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