Country’s current account deficit widens as services exports and remittances slow down

Source: The Economic Times, Mar 23, 2017

MUMBAI: Current account deficit moderated during the quarter ended December 2016 despite lower trade deficit as both services exports on account of demonetisation and remittances by global Indians also dipped due to global slowdown.

As capital flows too slowed down, the overall balance of payments ended in a moderate deficit of $ 1.2 billion in the latest quarter.

Current account deficit (CAD), the excess of India’s imports of goods and services over exports in its external sector balance sheet, expanded to $ 7.9 during October-December, the quarter in which the historic decision to ban high value Rs 500 and Rs 1000 notes, according to preliminary estimates released by the Reserve Bank of India. This is marginally higher than the CAD of the same period last years- October-December’15, when the deficit was $7.1 billion. But as a percentage of GDP, the ratio is same in both periods at 1.4% of GDP.

While the trade deficit contracted to $ 33.3 billion in the latest quarter from $34 billion in the same period a year ago, the country’s crude import bill accounting for over 20% of the country’s imports rose by about $1.7 billion (year-on-year) as global oil prices started firming up.

A structural shift in the current account number in the balance of payments is evident as traditional contributors to the current account surplus – software exports and remittances by overseas Indians continued to slip for the second consecutive quarter.

Remittances by the Indian diaspora amounted $ 15.2 billion, having declined by 3.8% from their level a year ago. Software services exports were lower by 3% at $ 17.7 billion compared to $18.2 billion in the July-September’15 quarter, an RBI release said.

Net foreign direct investment at $ 9.8 billion in Q3 of FY’17 was marginally lower than its level a year ago. There has been net outflow of portfolio investment of $ 11.3 billion as against net inflow of$ 0.6 billion in Q3 of last year; portfolio outflows occurred in both equity and debt segments. Even non-resident Indian (NRI) deposits declined in Q3 ofFY’17 by $ 18.5 billion as against an inflow of $ 1.6 billion a year ago.

The capital account ended in a lower surplus of $ 6.1 billion compared to $10.5 billion surplus in the same period a year ago. The overall balance of payments ended in a modest deficit of $1.2 billion compared to a $ 4 billion surplus in the same period a year ago.

 

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