The country’s current account deficit for fiscal year 2014-15 eased to 1.3 percent of gross domestic product (GDP), compared to 1.7 percent in the year earlier, helped by relief on the trade account, which in turn was helped by falling oil prices and muted gold imports.
Data released by the Reserve Bank of India today showed the country’s current account deficit (CAD) stood at USD 27.5 billion versus USD 32.4 billion YoY, while the trade deficit eased from USD 147.6 billion to USD 144.2 billion.
The full-year CAD figure was helped by the deficit falling to as little as 0.2 percent of GDP in the fourth January-March quarter (versus 1.6 percent quarter-on-quarter).
The fourth quarter also saw the highest net accretion of forex reserves, to the tune of USD 31.1 billion, in a single quarter.
In an interview with CNBC-TV18’s Latha Venkatesh, L&T Finance Chief Economist Rupa-Rege Nitsure and ICRA Chief Economist Aditi Nayar outlined their views on the data.
Excerpts from the conversation on CNBC-TV18.
Q: Your thoughts current account deficit of 0.2 percent and a balance of payment surplus whopping USD 30 billion?
Nitsure: These are very healthy numbers with positive under current but as you very rightly said in your briefing imports have fallen faster than exports partly because of globally commodity prices moderated but also because our economic activity which is highly import intensive was also subdued in the last quarter. So, from the real sector perspective sustained contraction of exports and also deceleration in the growth of the non-oil, non-precious metal import doesn’t augur a good picture. What I am saying is that these are good numbers but there are questions about their sustainability.
Q: Your final thoughts on the balance of payment surplus, more importantly I wanted your word on trends for FY16?
Nitsure: In the emerging market space definitely India looked much better throughout FY15 and that is why we attracted so much of funds but the point is that as I said earlier the real issue is about its sustainability but I personally feel that FY16 some positive trends already have started emerging government spending has picked up, we are seeing some kind of return of consumer confidence.
So, I feel that if you look at the global picture India still stands as a brighter spot but I am not so confident that we may attract close to the same extent because lot of uncertainties are looming over us especially the Fed lift off and its spill over effect. So, we have to remain guarded but definitely as Aditi said sustained good position for two years should give us enough confidence to face any kind of an adverse global shock.
Q: Your first thoughts on the CAD, were you expecting a surplus?
Nayar: We had given up hope for surplus. We had expected a mild one initially but as some of the additional data came in for the month of March we had lost hope for that. Overall I would say at least for the quarter a mild deficit is broadly unsurprising.
Along similar lines as what Rupa is seeing, we really need to keep in mind that with oil imports having netted as a benefit of USD 18 billion between 2013-14 and ’14-’15, the current account deficit has only come down by USD 5 billion. So, we have lost on that USD 13 billion whether it is because of somewhat higher gold imports or the fact that exports growth has not been that great – in fact on the merchandise side we have seen a some what of a contraction, so that is something which is a little bit of a sobering fact however if we compare the situation, look at ’13-’14 and ’14-’15 where the current account deficit has averaged about 1.5 percent of GDP, the situation in ’11-’12 and ’12-’13 where it was more than four percent of GDP, clearly the turnaround has been quite substantial and at least it sustained for two years.
Q: I take your point that this is a gift of oil to some extent and it doesn’t seem as good as it looked when oil was at USD 45 and we thought we are going to harvest a fairly decent current account surplus, all we have managed is a minor current account deficit. I take your point and this benefit is not staying- as we can see oil prices are rising. Separately I wanted your comment on the balance of payments surplus, did you expect USD 30 billion? We knew about the FII inflows, did we know that we got USD 10 billion in FDI, that is a good number?
Nayar: This was pretty much on the cards given also how the foreign exchange reserves were looking like they were moving by the end of March and then the subsequent movement further that we have seen in the last couple of months. So overall I don’t think it is that surprising, one of the other reasonably positive trends that I have been able to see is that on a net basis when we look at 10.25, the accretion is not that high, so that is another little bit of good news that we have out of this data.
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