CAD narrows to $300 mn in Q1 on massive import contraction

The current account deficit (CAD) narrowed sharply to just USD 300 million, or 0.1 percent of GDP, in the June quarter, driven by lower trade deficit on deeper import contraction, the Reserve Bank said today.

The CAD, a key factor monitored while assessing a country's external position, had stood at a high of USD 6.1 billion, or 1.2 per cent of GDP, in the year-ago period.

Trade deficit for the reporting period came down to USD 23.8 billion from USD 34.2 billion in the year-ago period, as per the preliminary data on the balance of payments published by the central bank.

This was on the back of a sharp 11.5 percentage points contraction in imports as against a 2.1 per cent dip in merchandise exports, the data showed.

A host of brokerages and analysts were estimating the country may post its first current account surplus in almost a decade on the back of contraction in imports.

A high CAD, which was close to 5 per cent of GDP in 2012-13, was one of the prime reasons which led to nervousness in the currency markets, making rupee the worst performing emerging market unit following the taper tantrums in summer of 2013.

This forced the government to take unconventional measures, including restrictions on gold imports to arrest the deficit, and according to some analysts this led to an uptick in smuggling of the precious metal which does not get captured in the official data.

The net services receipts declined to USD 15.77 billion from USD 17.75 billion a year ago due to a fall in net earnings on account of travel, financial services and other business services, it said.

In what hints at a dip in remittances, the private transfer receipts, which mainly represents the money sent by the Indian Diaspora, declined to USD 15.2 billion from USD 17.13 billion a year ago, it said.

The net foreign direct investment dipped massively to USD 4.1 billion in the reporting period from USD 10 billion a year ago and USD 8.8 billion in the preceding quarter (January -March 2016), the central bank said.

But the portfolio investment recorded a net inflow of USD 2.1 billion as against a marginal USD 50 million net outflow in the year-ago period and USD 1.5 billion outflow in the preceding March quarter.

There was a moderation in the accretion of deposits from the non-residents as well at USD 1.4 billion, it said.

A jump in repayments under external commercial borrowings led to a net outflow of USD 3.22 billion under loans to India in the quarter as against net borrowings of USD 5.65 billion in the year-ago period, it said.