India's Q4 current account deficit plunges to $1.3 bn

India's current account deficit narrowed sharply to $1.3 billion, or just 0.2 percent of GDP, on the back of a fall in trade deficit in the fourth quarter ended March, as compared to $8.2 billion in the previous quarter ended December, it was announced on Wednesday.

The CAD was at a marginally higher than $1.2 billion in the corresponding period in the previous year, the Reserve Bank of India said.

"The reduction in the CAD in Q4 2014-15 was primarily on account of lower trade deficit as net earnings through services and primary income (profit, dividend and interest) witnessed a decline in q-o-q (quarter-on-quarter) terms albeit secondary income recorded a marginal increase of 0.4 percent," RBI said.

The merchandise trade deficit ($31.7 billion during Q4 2014-15) fell sharply on a quarter-on-quarter basis on account of a larger decline in imports (13.4 percent) than in exports (10.4 percent).

The balance of payments, at a surplus of $$30.1 billion during the quarter in question, was more than double the $13.2 billion surplus in the previous quarter, on the back of a sizeable increase in net financial flows.

"During Q4 of 2014-15, on a BoP basis, there was highest ever net accretion of $30.1 billion to India's foreign exchange reserves in a single quarter; it was more than double the accretion in the preceding quarter and almost four times of the reserves accrued in Q4 of 2013-14 signifying record increase in capital inflows and dip in current account deficit," the RBI said.

The trade deficit widened marginally in the fourth quarter as exports declined 15.4 percent in the quarter in question over the year-ago period as compared to a 10.4 percent decline in imports.

Net inflows under the capital and financial account (excluding change in foreign exchange reserves) rose to $89.5 billion during 2014-15 from $48.7 billion in the previous year.

The RBI had in a statement issued during the second bi-monthly policy review last week estimated the CAD at 1.5 percent for the current fiscal.