CAD dipped to 1.7% of GDP ($ 32.4 billion) in FY2014 from 4.7% ($ 87.8 billion) in FY2013
India's current account deficit (CAD) narrowed sharply to US$ 1.2 billion (0.2% of GDP) in Q4FY2014 from US$ 18.1 billion (3.6% of GDP) in Q4FY2013, which was also lower than US$ 4.2 billion (0.9% of GDP) in Q3FY2014. The lower CAD was primarily on account of a decline in the trade deficit as decline in imports was sharper than that in exports.On a BoP basis, merchandise exports declined by 1.3% to US$ 83.7 billion in Q4FY2014 as against an increase of 5.9% in Q4FY2013.
On the other hand, declining trend in merchandise imports (on BoP basis) continued in Q4FY2014. Imports at US$ 114.3 billion moderated by 12.3% in Q4FY2014 as compared with a decline of 1.0% in Q4FY2013. Decline in imports was primarily led by a steep decline in gold imports, which amounted to US$ 5.3 billion, significantly lower than US$ 15.8 billion in Q4FY2013.
As a result, the merchandise trade deficit (BoP basis) contracted by about 33% to US$ 30.7 billion in Q4FY2014 from US$ 45.6 billion in the corresponding quarter a year ago.
Net services receipts improved during Q4FY2014 on account of higher exports of services. Net services at US$ 19.6 billion recorded a growth of 15.6% in Q4FY2014 as against a decline of 3.9% in Q4FY2013.
Net outflow on account of primary income (profit, dividend and interest) amounting to US$ 6.4 billion in Q4FY2014 was higher than that of US$ 5.2 billion in the corresponding quarter of FY2013 as well as the preceding quarter (US$ 5.4 billion). In Q4FY2014, gross private transfer receipts at US$ 17.3 billion also improved by 3.0% over the corresponding quarter of FY2013.
In the financial account, on net basis, both foreign direct investment and portfolio investment recorded inflows in Q4FY2014. While net inflow on account of portfolio investment was US$ 9.3 billion, net FDI flow was lower at US$ 0.9 billion.
'Loans'(net) availed by deposit taking corporations (commercial banks) witnessed an outflow of US$ 5.7 billion in Q4FY2014 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$ 3.7 billion in Q4FY2014 as compared to US$ 2.8 billion in Q4FY2013. Loans (net) availed by other sectors (i.e., external commercial borrowings) at US$ 4.9 billion also showed an increase of 19.4% over Q4FY2013. Net trade credits and advances, however, continued to show outflow in Q4FY2014, as repayments remained higher than disbursements.
On a BoP basis, there was a net accretion of US$ 7.1 billion to India's foreign exchange reserves in Q4FY2014 as compared with US$ 19.1 billion in the preceding quarter.
Developments in India's BoP during FY2014
Export recovery and moderation in imports led to a sharp improvement in the trade deficit to US$ 147.6 billion in FY2014 from US$ 195.7 billion in FY2013.
Contraction in the trade deficit, coupled with a rise in net invisibles receipts, resulted in a reduction of the CAD to US$ 32.4 billion (1.7% of GDP) from US$ 87.8 billion (4.7% of GDP) in FY2013.
Net inflows under the capital and financial account (excluding change in foreign exchange reserves) declined to US$ 48.8 billion in FY2014 from US$ 89.0 billion in corresponding period of FY2013 owing to lower net FDI and portfolio flows, net repayment of loans and trade credit & advances.
On BoP basis, foreign exchange reserves increased by US$ 15.5 billion during FY2014 as compared with US$ 3.8 billion in FY2013.
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