India’s current account deficit narrows to 0.2% of GDP in Q4 FY15

10 Jun 2015


India's current account deficit (CAD) narrowed sharply to $1.3 billion (0.2 per cent of GDP) on a quarter-over-quarter basis in the fourth quarter of 20141-5 against $8.3 billion (1.6 per cent of GDP in Q3). However, on a year-on-year basis, the CAD was a shade higher compared to $1.2 billion or 0.2 per cent of GDP in Q4 of 2013-14.

The merchandise trade deficit contracted sharply to $31.7 billion during Q4 2014-15 on a quarter-over-quarter basis on account of a 13.4 per cent decline in merchandise imports compared to a 10.4 per cent decline in merchandise exports, RBI estimates showed.

However, in terms of y-o-y changes, the trade deficit in Q4 2014-15 widened marginally as exports registered a larger decline (15.4 per cent), than imports (10.4 per cent).

The reduction in the CAD in Q4 2014-15 was primarily on account of lower trade deficit as net earnings through services and primary income (profit, dividend and interest) witnessed a decline in q-o-q terms. However, secondary income recorded a marginal increase of 0.4 per cent.

Gross private transfer receipts, representing remittances by Indians employed overseas amounted to $17.5 billion, showing a marginal increase of 0.4 per cent on q-o-q basis and an increase of 1.2 per cent from the level a year ago.

In the financial account, net inflows of foreign direct and portfolio investment were higher on a q-o-q basis, though net loans availed by banks witnessed an outflow $3.5 billion mainly on account of increase in balances of foreign currency assets held abroad by banks.

During Q4 of 2014-15, on a BoP basis, there was the highest ever net accretion of $30.1 billion to India's foreign exchange reserves in a single quarter - it was more than double the accretion in the preceding quarter and almost four times of the reserves accrued in Q4 of 2013-14 signifying record increase in capital inflows and dip in current account deficit.
BoP during April-March 2015.

On a cumulative basis, the overall BoP during 2014-15 showed improvement over the preceding year. Lower CAD, on the back of contraction in trade deficit and marginal improvement in the net invisible earnings, along with a sizable increase in net financial flows enabled a large build-up of reserves.

India's trade deficit narrowed to $144.2 billion in 2014-15 from $147.6 billion in 2013-14. With modest increase in invisibles supported by some improvement in net services receipts, the CAD tracked the trade deficit and shrank to $27.5 billion in 2014-15 (1.3 per cent of GDP) from $32.4 billion (1.7 per cent of GDP) a year ago.

Net inflows under the capital and financial account (excluding change in foreign exchange reserves) rose to $89.5 billion during 2014-15 from $48.7 billion in the previous year.

There was an accretion to India's foreign exchange reserves to the tune of $61.4 billion in 2014-15 compared with $15.5 billion in 2013-14.

At the end of March 2015, the level of foreign exchange reserves stood at $341.6 billion.

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