India’s current account deficit jumps to 1.4% in December quarter

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New Delhi: India’s current account deficit (CAD) jumped to a four quarter high of 1.4% of gross domestic product (GDP) in the December quarter from 0.6% of GDP in the September quarter as trade deficit widened.

In the same quarter (October-December) a year ago, India posted a CAD of $7.1 billion, or 1.4% of GDP.

Aditi Nayar, principal economist at ICRA Ltd said CAD for the third quarter of 2016-17 provided a positive surprise, with the size of the deficit appreciably smaller than expected ($33.3 billion in Q3 against $25.6 billion in Q2), despite the pressure exerted by higher gold imports and crude oil prices. “This is partly on account of a larger services trade surplus than what had been signalled by the monthly data released previously ($17.6 billion in Q3 against $16.3 billion in Q2). Moreover, the services trade surplus stood at a 4-quarter high in Q3 FY2017, which is encouraging in light of growing concerns related to global headwinds,” she added.

Workers’ remittances by overseas Indians, after picking up in Q2 at $9 billion, again declined marginally in Q3 to $8.9 billion. Subdued income conditions in the Gulf region due to the downward spiral in oil prices have kept growth in remittances muted.

In the financial account, net foreign direct investment (FDI) at $9.8 billion in Q3 of 2016-17 was almost half of $16.9 billion in the Q2 of the same financial year, while equity and debt segments saw a net outflow of portfolio investment of $11.3 billion in Q3 against $6 billion in the previous quarter.

Despite moderation in India’s exports, India’s external sector position has been comfortable, with the CAD progressively contracting from $ 88.2 billion (4.8% of GDP) in 2012-13 to $ 22.2 billion (1.1% of GDP) in 2015-16.

Nayar said with the third quarter deficit undershooting expectations, ICRA has revised its forecast for the 2016-17 CAD to $15 billion or 0.7% of GDP, from $20 billion projected earlier.

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