India's current account deficit spikes to 1.4% of GDP in Q3 of FY2017

CAD widened primarily on account of a decline in net invisibles receipts

India's current account deficit (CAD) at US$ 7.9 billion (1.4% of GDP) in Q3 of 2016-17 was higher than US$ 7.1 billion (1.4% of GDP) in Q3 of 2015-16 and US$ 3.4 billion (0.6% of GDP) in the preceding quarter.

Despite a slightly lower trade deficit on a year-on-year (y-o-y) basis, the CAD widened primarily on account of a decline in net invisibles receipts. Net services receipts moderated on a y-o-y basis, primarily owing to the fall in earnings from software, financial services and charges for intellectual property rights.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to US$ 15.2 billion, having declined by 3.8% from their level a year ago.

In the financial account, net foreign direct investment at US$ 9.8 billion in Q3 of 2016-17 was marginally lower than its level a year ago.

There has been net outflow of portfolio investment to the tune of US$ 11.3 billion as against net inflow of US$ 0.6 billion in Q3 of last year; portfolio outflows occurred in both equity and debt segments.

Reflecting the redemption of FCNR (B) deposits, non-resident Indian (NRI) deposits declined by US$ 18.5 billion in Q3 of 2016-17 as against an inflow of US$ 1.6 billion a year ago.

In Q3 of 2016-17, foreign exchange reserves (on BoP basis) declined by US$ 1.2 billion as against an increase of US$ 4.1 billion in Q3 of last year.

BoP during April-December 2016

On a cumulative basis, the CAD narrowed to 0.7% of GDP in April-December 2016 from 1.4% in the corresponding period of 2015-16 on the back of the contraction in the trade deficit.

India's trade deficit narrowed to US$ 82.8 billion in April-December 2016 from US$ 105.3 billion in April-December 2015.

Net invisible receipts were lower, mainly due to moderation in software exports and net private transfers and higher outgo on account of primary income (profit, interest and dividends).

Net FDI inflows during April-December 2016 (US$ 30.6 billion) rose by 12.3% over the level during the corresponding period of 2015-16.

Portfolio investment recorded a net outflow of US$ 3.2 billion during April-December 2016 as compared with US$ 3.0 billion a year ago.

In April-December 2016, there was an accretion of US$ 14.2 billion to the foreign exchange reserves.

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