Current account deficit narrows with import plunge in Q2

But on a sequential basis CAD higher than the $0.3 bn in April-June

With a sharp drop in imports, the country’s current account deficit (CAD) declined to $3.4 billion (0.6 per cent of the gross domestic product) for the financial year’s second quarter ended September, from $8.5 billion (1.7 per cent of GDP) in July-September 2015.

 
However, on a sequential basis, CAD was higher in Q2 than the $0.3-billion figure (0.1 per cent of GDP) in April-June, according to Reserve Bank of India (RBI) data. The contraction over a year was primarily due to a lower trade deficit ($25.6 billion), brought about by a larger decline in merchandise imports, relative to exports.
 

RBI said for the six months ended September, first half of this financial year, the CAD had narrowed to 0.3 per cent of GDP from 1.5 per cent in H1 of 2015-16, with the contraction in the trade deficit.
 
“The contraction in CAD on year-on-year basis was primarily on account of lower trade deficit ($25.6 billion) brought about by a larger decline in merchandise imports relative to exports,” RBI stated.
 
During the second quarter, private transfer receipts, which has a large chunk of remittances by Indians employed abroad, declined by 10.7 per cent to $15.2 billion.
 
In the financial account, net inflows of both foreign direct investment and portfolio investment were significantly higher, year on year.
 
The balance of payments was in positive territory, with foreign exchange reserves rising by $8.5 billion in Q2, as against a decline of $0.9 billion in Q2 of FY16.