Current account deficit narrows to USD 8.2 bn in Q3

India’s balance of payments (BoP) for the October-December quarter of FY15 came in line with expectations. On a cumulative basis, the overall BoP shows considerable improvement on a y-o-y basis on the back of a higher growth in merchandise exports and a marginal rise in merchandise imports, with a sizable increase in net financial flows financing the CAD and enabling a large build-up of reserves.

On a quarter-over-quarter basis, India’s current account deficit (CAD) narrowed to USD 8.2 billion or 1.6 percent of GDP in Q3 of 2014-15 from USD 10.1 billion or 2 percent of GDP in Q2; on a year-on-year (y-o-y) basis, however, the CAD doubled (from USD 4.2 billion or 0.9 percent of GDP in Q3 of 2013-14), a Reserve Bank release said on Tuesday. The reduction in the CAD in Q3 2014-15 was primarily on account of net exports of services which picked up in q-o-q terms on the back of an improvement in net earnings through travel and software services, and lower net outflows under primary income (profit, dividend and interest).

The merchandise trade deficit (US$ 39.2 billion during Q3 2014-15) widened on a q-o-q basis on account of a larger decline in merchandise exports (7.3 per cent) than in merchandise imports (4.5 per cent); in terms of y-o-y changes too, the trade deficit in Q3 2014-15 widened due to a decline in exports (1.0 per cent), while imports increased (4.5 per cent).

On a BoP basis, a net accretion of US$ 13.2 billion to India’s foreign exchange reserves in Q3 of 2014-15, almost double the accretion in the preceding quarter, but lower than in Q3 of 2013-14 which was bolstered by special non-resident and banks’ overseas borrowings.