Current account deficit narrows sharply to US$ 4.2 billion in Q3 FY14

India's current account deficit (CAD) narrowed sharply to US$ 4.2 billion (0.9 per cent of GDP) in Q3 of 2013-14 from US$ 31.9 billion (6.5 per cent of GDP) in Q3 of 2012-13 which is also lower than US$ 5.2 billion (1.2 per cent of GDP) in Q2 of 2013-14. The lower CAD was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports.

On a BoP basis, merchandise exports increased by 7.5 per cent to US$ 79.8 billion in Q3 of 2013-14 (3.9 per cent in Q3 of 2012-13) on the back of significant growth especially in the exports of engineering goods, readymade garments, iron ore, marine products and chemicals.

On the other hand, merchandise imports at US$ 112.9 billion, recorded a decline of 14.8 per cent in Q3 of 2013-14 as against an increase of 10.4 per cent in Q3 of 2012-13. Decline in imports in Q3 was primarily led by a steep decline in gold imports, which amounted to US$ 3.1 billion as compared to US$ 17.8 billion in Q3 of 2012-13 and US$ 3.9 billion in Q2 of 2013-14.

As a result, the merchandise trade deficit (BoP basis) contracted by around 43 per cent to US$ 33.2 billion in Q3 of 2013-14 from US$ 58.4 billion a year ago.

Net services receipts improved during Q3 of 2013-14, essentially reflecting a decline in payments on account of services imports. Net services at US$ 18.1 billion recorded a growth of 8.9 per cent in Q3 of 2013-14 (y-o-y).

Net outflow on account of primary income (profit, dividend and interest) amounting to US$ 5.4 billion in Q3 of 2013-14 was relatively lower than that in the corresponding quarter (US$ 5.8 billion) of 2012-13 as well as the preceding quarter (US$ 6.3 billion). In Q3 of 2013-14, gross private transfer receipts at US$ 17.3 billion showed an increase of 4.8 per cent (y-o-y).

In the financial account, on net basis, both foreign direct investment and portfolio investment recorded inflows of US$ 6.1 billion and US$ 2.4 billion, respectively in Q3 of 2013-14. Within portfolio investment, the debt segment showed net outflow in Q3 which, however, was offset by higher net inflows of US$ 6.2 billion under the category of equity.

'Loans'(net) availed by deposit taking corporations (commercial banks) witnessed an outflow of US$ 5.9 billion in Q3 of 2013-14 owing to repayments of overseas borrowings and a build-up of their overseas foreign currency assets. Under 'currency & deposits', net inflows of NRI deposits amounted to US$ 21.4 billion in Q3 of 2013-14 as compared to US$ 2.7 billion in Q3 of 2012-13. A sharp increase in NRI deposits was on account of fresh FCNR(B) deposits mobilised under the swap scheme offered by the Reserve Bank during September-November 2013. Loans (net) availed by other sectors (i.e., external commercial borrowings) at US$ 4.1 billion also showed an increase of 42.1 per cent over Q3 of 2012-13. Net flows under trade credits and advances, however, continued to be negative in Q3 of 2013-14 as repayments remained higher than disbursements.

 On a BoP basis, there was a net accretion of US$ 19.1 billion to India's foreign exchange reserves in Q3 of 2013-14 as compared to a drawdown of US$ 10.4 billion in the preceding quarter.

 Developments in India's BoP during April-December 2013

The turnaround in export growth and decline in imports from July 2013 onwards led to a sharp improvement in the trade deficit to US$ 116.9 billion in April-December 2013 from US$ 150.0 billion in April-December 2012.

Major Items of India's Balance of Payments(US$ Billion) Oct-Dec 2013 (P) Oct-Dec 2012 (PR) Apr-Dec 2013-14 (P) Apr-Dec 2012-13 (PR) Credit Debit Net Credit Debit Net Credit Debit Net Credit Debit NetA. Current Account 137.7 141.9 -4.2 130.5 162.3 -31.9 407 438.2 -31.1 388.2 458 -69.81. Goods 79.8 112.9 -33.2 74.2 132.6 -58.4 234.9 351.9 -116.9 221.8 371.8 -150Of which: POL 14.9 42.2 -27.3 17.3 41.8 -24.5 47.2 125.2 -77.9 44.8 121.8 -77.12.Services 37.6 19.5 18.1 37.1 20.4 16.6 110.8 57.5 53.4 107.9 59.9 483. Primary Income 3 8.4 -5.4 2.7 8.5 -5.8 8.6 25.2 -16.6 7.6 23.9 -16.34. Secondary Income 17.3 1 16.3 16.5 0.8 15.7 52.6 3.6 49 50.9 2.3 48.6B. Capital Account and Financial Account 129.3 124.5 4.8 120.2 89.5 30.8 396.1 364.9 31.3 339.6 272.2 67.4Of which: Change in Reserve (increase (-)/ Decrease (+)) 19.1 -19.1 0.8 -0.8 8.4 -8.4 1.1 -1.1C. Errors & Omissions (-)(A+B) -0.6 1.1 -0.1 2.4P: Preliminary; PR: Partially RevisedNote: Total of subcomponents may not tally with aggregate due to rounding off.

Contraction in the trade deficit, coupled with a rise in net invisibles receipts, resulted in a reduction of the CAD to US$ 31.1 billion (2.3 per cent of GDP) in April-December 2013 from US$ 69.8 billion (5.2 per cent of GDP) in April-December of 2012.

 Net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to US$ 39.7 billion in April-December 2013 from US$ 68.5 billion in corresponding period of 2012-13 owing to net outflows on account of portfolio investment, higher repayment of loans, and trade credit & advances.

 On BoP basis, foreign exchange reserves increased by US$ 8.4 billion during April-December 2013 as compared with an accretion of US$ 1.1 billion in April-December 2012.

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