India's current account deficit narrows to 2% of GDP in June quarter

India’s current account deficit (CAD) for the first quarter ended June contracted to 2 per cent of the gross domestic product (GDP) on a year-on-year basis, primarily on account of higher invisible receipts at $31.9 billion, as compared with $29.9 billion a year ago, data released by the RBI showed. 

“Net services receipts increased by 7.3 per cent on a year-on-year basis, mainly on the back of a rise in net earnings from travel, financial services and telecommunications, computer and information services,” the RBI said in its statement. 

Private transfer receipts, mainly representing remittances, rose 6.2 per cent to $19.9 billion. 

Net foreign direct investment was $13.9 billion, as compared to $9.6 billion a year ago. Foreign portfolio investment recorded a net inflow of $4.8 billion in the first quarter, as against an outflow of $8.1 billion a year ago. This was on account of net purchases in the debt and equity markets. 

Oil imports rose by 0.4 per cent to $34.9 billion in the first quarter, from $34.7 billion a year ago. Gold imports rose by 35.6 per cent to $11.4 billion from $8.4 billion a year ago. Net inflow on account of external commercial borrowings to India was $6.3 billion in the first quarter, as against an outflow of $1.5 billion a year ago. 

The CAD contraction was a positive surprise, said Aditi Nayar, principal economist of ICRA. 

“Based on the available trends for July-August 2019, we expect the current account deficit to decline substantially to $10-11 billion in Q2, FY20 from $19 billion in Q2 FY19, on the back of moderate crude oil prices, a weak appetite for gold imports at current prices as well as subdued domestic demand,” Nayar said, adding that the CAD could ease to $52 billion or 1.8 per cent of the GDP in FY20 from $57.2 billion or 2.1 per cent of GDP in FY19, “unless crude oil prices record a sustained increase or domestic investment and consumption demand display a revival.”