The Reserve Bank of India (RBI) released the country's balance of payments (BoP) report for third quarter of this fiscal, stating that the current account deficit (CAD) fell to USD 7.1 billion -- 1.3 percent of gross domestic product (GDP)-- from USD 7.7 billion in the same quarter last fiscal.
The BoP surplus in the October-December quarter stood at USD 4.1 billion against USD 13.2 billion year-on-year, according to RBI.Key highlights of India's BoP in Q3 of 2015-16:
- India’s current account deficit (CAD) at USD 7.1 billion (1.3 percent of GDP) in Q3 of 2015-16 was lower than USD 7.7 billion (1.5 percent of GDP) in Q3 of 2014-15 and USD 8.7 billion (1.7 percent of GDP) in the preceding quarter.
- The contraction in CAD was primarily on account of a lower trade deficit (USD 34.0 billion) than in Q3 of last year (USD 38.6 billion) and USD 37.4 billion in the preceding quarter.
- Net services receipts moderated on a y-o-y basis largely due to fall in export receipts in transport and financial services, though there has been marginal improvement over the preceding quarter.
- Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to USD 15.8 billion, a decline from their level in the preceding quarter as well as from a year ago.
- After moderating in Q2, net foreign direct investment again picked up and stood at USD 10.8 billion in Q3.
- There has been a marginal net outflow of USD 0.2 billion in portfolio investment in Q3 of 2015-16 as against net outflow of USD 3.5 billion in the preceding quarter; equity outflows in Q3 were almost offset by inflows into the debt segment.
- Non-resident Indian (NRI) deposits moderated significantly in Q3 of 2015-16 over their level in Q3 last year as well as the preceding quarter.
- Foreign exchange reserves (on a BoP basis) increased by USD 4.1 billion in Q3 of 2015-16.
Reacting to the report, Siddhartha Sanyal of Barclays Capital told CNBC-TV18 that the CAD is higher than expectation and sees CAD for the whole fiscal year to be around 1 percent of GDP.
In the same interview, Shubhada Rao, Chief Economist at Yes Bank said that this year has been a comfortable one for CAD as foreign capital flows have been tracking healthy numbers, particularly on the FDI front.Below is the transcript of Siddhartha Sanyal and Shubhada Rao's interview with CNBC-TV18.Q: 1.3 percent, absolutely no longer this is headline grabbing? Rao:
Quite clearly this year has been one that we have been more and more comfortable about the extent of the current account gap because the foreign capital flows have been tracking healthy numbers, particularly on the foreign direct investment (FDI) and that one item alone would suffice to bridge the current account gap.
Having said two or three points that we need to keep a track of is one, that services as we were also alluding to and some of the private transfers have been slowing. That is something which is a likely reflection of what is happening to the oil prices and its impact on some of the remittances that are coming in. Q: But this 1.3 percent deficit is as per your calculations or is it worse or better? Rao:
For the third quarter it is 1.3 percent. It is definitely wider than what we had anticipated. For the full year we are looking at 1.1 which we will have to see, as of now we were tracking 1.1 for the full year. Q: There were two bits of disappointment, the software services have earned USD 18.4 billion net. In the past they have earned more like USD 18.6 billion the previous year. So, probably that is a bit of disappointment and there is a bit of disappointment as well in the private transfers that have come in marginally lower, 15.8, in prior years we got a little more than that. Rao:
That is right, in fact these two other things which actually reflect that one on the remittances and transfers as I said we were anticipating and services in general have been showing a slower momentum in the last two or three quarters. Now that is of course also to do with how we are exporting our business services and software and to some extent the renewed concerns on global slowdown maybe impacting the services momentum in the quarter gone by. Q: It is a minus USD 7 billion on the current account, that is a current account deficit of USD 7 billion, 1.3 percent of Gross Domestic Product (GDP). How does that square with your expectation? Sanyal:
We were expecting around USD 5.5 billion kind of a deficit in this particular quarter. It is slightly higher than that but overall if you see with this particular print we are currently at around USD 21 billion for the first nine months of the year and we are anticipating a minor positive number for the fourth quarter. So, overall number in our estimation will be back to around USD 17-18 billion for the year as a whole which will be just around one percent of GDP odd, in fact even sub one percent most probably. So, as a whole it is a pretty healthy number overall. Q: Did you have a chance to look at the micro numbers. They have just hit the screens. Anything that you want to comment on in terms of either FDI or private transfers which has fallen a bit, any comment at all? Sanyal:
Nothing really headline grabbing as you explained earlier but the FDI trend looks reasonably steady. So, that remains a very clear healthy sign. We will have to leave some kind of potential fluctuation going ahead on the Foreign Institutional Investors (FII) flows given the current global uncertain situation.
However, overall given that the FDI remains steady as well as the other sources of capital flows are significantly higher than the overall current account deficit we don't really see any risk whatsoever on this particular front. So, this should clearly ensure that we will remain on a track of overall balance of payment (BoP) surplus on a very confident and healthy fashion for the quarters or years to come at the moment.