India’s current account deficit narrowed to 0.9% of the Gross Domestic Product or $6.3 billion in the July-September quarter of the ongoing fiscal year from 2.9% or $19 billion during the same time last year, according to data released by the Reserve Bank of India on Tuesday. The central bank had said in June that the country’s current account deficit had widened to 2.1% of the GDP in in 2018-’19.
“The contraction in the CAD was primarily on account of a lower trade deficit at US$ 38.1 billion as compared with US$ 50.0 billion a year ago,” the RBI release said. The Current Account Deficit is the net amount of foreign exchange inflows and outflows.
Net services receipts during the July-September quarter went up by 0.9% on a year-on-year basis due to a rise in net earnings from computer, travel and financial services, the central bank said. “Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to $21.9 billion, increasing by 5.2% from their level a year ago,” RBI said. “In the financial account, net foreign direct investment was $7.4 billion, almost same level as in Q2 of 2018-19.”
Foreign portfolio investment recorded net inflow of $2.5 billion – as opposed to outflow of $1.6 billion in the same quarter of 2018-’19 due to net purchases in the debt market. The net inflow of external commercial borrowings to India was $3.2 billion when compared to $2.0 billion in same period in the previous year.
“There was an accretion of $5.1 billion to the foreign exchange reserves (on BoP basis) as against a depletion of $ 1.9 billion in Q2 of 2018-19,” the RBI release added.
The trade deficit for the January to March 2019 quarter stood at $35.2 billion (Rs 2.42 lakh crore) as compared with $41.6 billion (Rs 2.86 lakh crore) in the corresponding period a year ago, the central bank had earlier said.
However, experts claimed that the improvement in current account deficit was not sustainable. The “trade deficit is lower primarily because imports have fallen at a faster rate than exports due to weak manufacturing activity and lower imports of raw materials and capital goods,” Chief economist at L&T Financial Services Rupa Rege Nitsure told Reuters. “Both the critical components of foreign exchange reserves – exports and FDI – have not shown any improvement year-on-year. On the other hand, portfolio inflows (hot money) and ECBs (external commercial borrowings) have increased significantly.”
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