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Friday, 17 June 2016

India’s current account deficit narrows to $300 million, lowest level in 7 years

MUMBAI: India's current account deficit narrowed to its lowest level in seven years in the quarter ended March, mainly due to lower trade gap as both exports and imports fell. Reserve Bank of India (RBI) data released on Thursday showed that the current account deficit (CAD) — difference between the value of all imports, including goods, services and investment incomes, and the value of all exports — had shrunk to $300 million in the fourth quarter of 2015-16, down
from $700 million a year earlier and sharply lower from $7.1 billion recorded in the previous quarter. This is the lowest deficit since a $4.74 billion surplus was reported in March 2009. "The contraction in CAD was primarily on account of a lower trade deficit ($24.8 billion) than in Q4 of last year ($31.6 billion) and $34 billion in the preceding quarter," RBI said. Trade deficit narrowed as both exports and imports of goods fell. The current account deficit for the full fiscal year narrowed to 1.1% of GDP down from 1.8% of GDP in 2014-15. However, economists said that the fall in the deficit was not an indicator for what lies ahead. "As the economy picks up and oil prices rise imports will increase, which will mean the deficit will increase. A higher deficit is not bad for India because we have a stable currency currently," said DK Joshi, chief economist at Crisil. Exports of goods dropped to $266.4 billion last fiscal from $316.5 billion in 2014-15, while imports dropped to $396.4 billion from $461.5 billion during the same period. In the quarter ended March 2016 net foreign direct investment (FDI) declined to $8.8 billion from $9.3 billion a year earlier. "Net services receipts declined on a year-on-year basis largely due to fall in exports of transport, financial services and telecommunication, computer and information services," RBI said. However, on a fiscal year basis net (FDI) inflows rose sharply by 15.3% to $36 billion in 2015-16.Trade deficit narrowed to $130.1 billion in 2015-16 from $144.9 billion in 2014-15, mainly as imports mostly of oil and other commodities dropped sharply. Economic affairs secretary Shaktikanta Das said a CAD at 1.1% of GDP is yet another robust macroeconomic indicator. "Efforts will continue in the reforms front," he said on Twitter. Das expects FDI inflows to be more in the current fiscal ending March 2017 due to the full impact of FDI liberalisation announced in November 2015. 

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