Current account deficit narrows to 0.9% of GDP in July-September quarter on lower trade deficit: RBI

  • In the first quarter, the deficit stood at 2% of Gross Domestic Product GDP or $14.2 billion

  • The contraction in the CAD was primarily on account of a lower trade deficit at $38.1 billion as compared with $50 billion a year ago

  • Trade deficit shrank to $84.3 billion in the first half of FY2019-20 from $95.8 billion last year

Mumbai: The current account deficit (CAD) narrowed to 0.9 percent of GDP or $6.3 billion in the July-September quarter of the current fiscal from 2.9 percent or $19 billion in same period last year, according to the RBI data.

In the first quarter, the deficit stood at 2 percent of Gross Domestic Product (GDP) or $14.2 billion.

"The contraction in the CAD was primarily on account of a lower trade deficit at $38.1 billion as compared with $50 billion a year ago," RBI said in a release.

 Current account deficit narrows to 0.9% of GDP in July-September quarter on lower trade deficit: RBI

Representational image. News 18.

In the first half of the current fiscal, the CAD narrowed to 1.5 percent of GDP from 2.6 percent in the same period in FY2018-19 on the back of a reduction in the trade deficit.

Trade deficit shrank to $84.3 billion in the first half of FY2019-20 from $95.8 billion last year, the RBI said.

Net foreign direct investment stood at $7.4 billion, almost the same level as in second quarter of 2018-19.

Helped by net purchases in the debt market, foreign portfolio investment recorded a net inflow of $2.5 billion in the September 2019 quarter, against an outflow of $1.6 billion a year ago.

In the April-September 2019 period, while the net foreign direct investment (FDI) inflows were at $21.2 billion, portfolio investment recorded a net inflow of $7.3 billion. Net services receipts increased 0.9 percent on in July-September on a y-o-y basis, on the back of a rise in net earnings from computer, travel and financial services, the RBI said.

There was a growth of $5.1 billion in the foreign exchange reserves in the September 2019 quarter, compared with a depletion of $1.9 billion a year ago.

During the first half of 2019-20, there was an accretion of USD 19.1 billion of the foreign exchange reserves, the RBI said.

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,” said Rupa Rege Nitsure, chief economist at L&T Financial Services.

Data last month showed annual economic growth slowed to 4.5 percent in the September quarter, its weakest pace since 2013.

The current account deficit stood at $6.3 billion in the September quarter versus $19 billion a year ago. The merchandise trade deficit narrowed to $38.1 billion from $50.0 billion, the central bank said.

Balance of payments, the difference between the current account and capital account, stood at a surplus of $5.1 billion in the September quarter compared with a deficit of $1.9 billion a year ago, data showed. However, the narrowed from $14 billion seen in the June quarter.

Net inflow on account of external commercial borrowings (ECBs) stood at $3.2 billion compared with $2 billion last year. Net foreign direct investment was largely unchanged at $7.4 billion.

Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to $21.9 billion, up 5.2 percent from a year ago, the data showed.

“Both the critical components of foreign exchange reserves — exports and FDI — have not shown any improvement Y-O-Y. On the other hand, portfolio inflows (hot money) and ECBs (debt capital) have increased significantly. This kind of improvement is not sustainable,” L&T’s Nitsure said.

With Reuters inputs

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Updated Date: Dec 31, 2019 19:06:14 IST


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