India's current account deficit narrows to 1.2% of GDP in Q1 FY16

India's current account deficit (CAD) narrowed to $6.2 billion, forming 1.2 per cent of the country's gross national product (GDP) in the first quarter of the current fiscal (2015-16) compared to $7.8 billion (1.6 per cent of GDP) a year ago.

This improvement was mainly on account of a contraction in the merchandise trade deficit to $34.2 billion during Q1 of 2015-16, due to a larger absolute decline in merchandise imports relative to merchandise exports.

The reduction in the CAD was also enabled by higher net earnings through services and lower outflow on account of primary income (profit, dividend and interest), data released by the Reserve Bank of India showed.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $16.2 billion, a marginal decline from their level a year ago.

In the financial account, net inflows of foreign direct investment were higher on a y-o-y basis. However, portfolio investment declined sharply, almost entirely in the debt segment.

Non-resident Indian (NRI) deposits received by commercial banks during the quarter at $5.9 billion were more than double the net inflow into these accounts in Q1 of last year.

Net loans availed by banks witnessed an inflow of $5.4 billion, mainly on account of a fall in foreign currency assets held abroad by banks.

In April-June 2015 there was net accretion of $11.4 billion to India's foreign exchange reserves on a BoP basis, which was marginally higher than the accretion in the corresponding quarter of last year.