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India's current account deficit (CAD) rose to $8.2 billion (1.6 per cent of gross domestic product) for the financial year's third quarter (Q3), ended December 2014, from $4.2 bn (0.9 per cent of GDP) for October-December 2013.
The CAD narrowed in Q3 when compared to that in the second quarter (July-September 2014), at $10.1 bn (two per cent of GDP). Over the financial year's first nine months, ended December 2014, the CAD narrowed to $26.2 bn from $31.1 bn in April-December 2013.
The accretion to foreign exchange reserves was $13.2 bn in the quarter, down from $19.1 bn in Q3 of 2013-14.
The Reserve Bank of India stated the CAD reduction in Q3 over Q2 was primarily due to a pick-up in net services exports. This had reflected an improvement in earnings from travel and software services, and lower outflow on account of profit, dividend and interest.
Rupa Rege Nitsure, chief economist, L&T Finance Holdings, said the CAD was muted in the quarter due to a fall in imports due to external factors such as the fall in global crude oil prices. What was worrisome was the contraction of merchandise export in Q3. The merchandise trade deficit ($39.2 bn in Q3) widened from the earlier quarter due to a larger decline in merchandise export (7.3 per cent) than in merchandise import (4.5 per cent). In terms of year-on-year changes, too, the trade deficit in Q3 widened due to a decline in export (one per cent), while import rose (4.5 per cent).
The oil import bill during the quarter declined to $20.2 bn from $26.8 bn in October-December 2013. Gold imports rose sharply to $11.07 bn from $3.2 bn in Q3 of FY14.
Aditi Nayar, senior economist, ICRA, said a further moderation in the net oil import bill is expected to contribute to a small current account surplus in the ongoing quarter. It will help to restrict the current account deficit below $28 bn (1.4 per cent of GDP in 2014-15).
The accretion in Q3 was bolstered by special non-resident and banks’ foreign borrowings.
On the balance of payments, RBI said gross private transfer receipts, remittances by Indians employed abroad, amounted to $17.5 bn in Q3. They provided sustained support to the BoP, at 12.6 per cent of current receipts, broadly the same level as in the preceding quarter and a year before.
In the financial account, net inflows of foreign direct and portfolio investment were somewhat lower on a quarter over quarter basis. The net loans availed by banks increased by $6.6 bn, mainly due to inward repatriations of assets held by them abroad. Year on year, the level of net financial flows was broadly sustained, despite the inflow of $21.4 bn in Q3 of 2013-14 under the non-resident deposit schemes, RBI said.
