Q1 current account deficit dips to 1.7% of GDP

In line with estimates, India’s current account deficit (CAD) for this financial year’s first quarter, April to June,  narrowed sharply to 1.7 per cent of gross domestic product ($7.8 billion) from 4.8 per cent of GDP ($21.8 bn) in the corresponding period of 2013-14.

The fall was aided by contraction in the trade deficit, on a rise in export and dip in import. The CAD for the fourth quarter (January-March) of 2013-14 was $1.2 bn (0.2 per cent of GDP), it was also announced.

The balance of payments (BoP) situation for Q1 was also on a healthy wicket.  There was accretion of $11.2 bn to foreign exchange (forex) reserves, as against a drawdown of $300 million in the corresponding quarter of 2013-14, the Reserve Bank (RBI) said on Monday.

Aditi Nayar, senior economist with rating agency ICRA, said the CAD was in line with their forecast of $6-8 bn. It was, she said, more than adequately financed by the robust foreign institutional investor and foreign direct investment inflow during the quarter, resulting in an augmentation of forex reserves.

RBI released the CAD and BOP data ahead of the usual dates. Under the normal schedule, it issues information for the first quarter at the end of September.

It said the lower CAD in the January-March quarter was primarily on account of a contraction in the trade deficit, contributed by both a rise in export and a decline in import. The merchandise trade deficit was down by 31 per cent, from $50.5 bn to $34.6 bn.

In the June quarter, exports rose 10.6 per cent to $81.7 bn. Those in Q1 of 2013-14 had contracted by 1.5 per cent. Imports moderated by 6.5 per cent in this quarter, to $116 bn, compared to a rise of 4.7 per cent in Q1 of FY14. The decline in import was primarily led by a steep fall in gold imports (57.2 per cent drop) of $7 bn, significantly lower than the $16.5 bn a year before, RBI said.

Net services trade improved marginally (1.2 per cent) in the quarter to $17.1 bn, due to higher export. Net outflow due to primary income (profit, dividend and interest) was higher at $6.7 bn as against $4.8 bn in Q1 of FY14. Gross private transfer receipts declined to $17.5 bn in April-June from $17.9 bn in the same period a year before.