Q4 current account deficit narrows to 0.1% of GDP

FY16 CAD at 1.1% of GDP as against 1.8% in FY15; outlook for rupee improves

India's current account deficit (CAD) declined sharply to $0.3 billion (0.1 per cent of Gross Domestic Product) in the fourth quarter of ended March 2016 (FY16) from $ 7.1 billion (1.3 per cent), in third quarter ended December 2015, on account of lower trade gap.

The CAD was 0.7 billion (0.1 per cent) in Q4 of 2014-15.

For the entire 2015-16 fiscal, CAD stood at 22.1 billion ( 1.1 per cent of the GDP) as against 26.8 billion (1.8 per cent) for 2014-15, according to Reserve Bank of India data.

Aditi Nayar, Senior Economist, ICRA said the current account deficit for 2015-16 is broadly in line with expectations. A fall in the services trade surplus and lower remittances eroded a significant portion of the savings arising from the narrowing of the merchandise trade deficit.

The trade deficit in the fourth quarter of FY16, stood at $24.8 billion compared to $31.6 billion in Q4 of 2014-15. The country's trade deficit was $130.1 billion for FY16 while for FY15 it stood at $144.9 billion.

Balance of Payments (BOP) stayed in positive territory with accretion of $3.3 billion to India's Foreign exchange reserves in Q4 2015-16. The overall BoP during the fiscal FY16 moderated to $17.9 billion from $ 61.06 billion in 2014-15.

During the fiscal, there was decline in net invisible receipts, reflecting moderation in both net services earnings and private transfer receipts.

Net Foreign Direct Investment (FDI) inflows during the last fiscal stood at $36 billion, up sharply by 15.3 per cent over the level in 2014-15, RBI said.

Portfolio investment, however, recorded a net outflow of $4.5 billion during the fiscal as against a net inflow of $ 40.9 billion in 2014-15.

Commenting on the CAD for current financial year, ICRA said the current account deficit would widen modestly from $22 billion in FY2016 to $25-30 billion in FY2017, nevertheless remaining contained at 1.2-1.3% of GDP.

A sustained rise in commodity prices, particularly crude oil would boost the import bill while simultaneously counteracting the risk posed by lower remittances, particularly from the Middle East, rating agency said.