Money & Banking

CAD narrows sharply to 0.9% of GDP in Q2

Mumbai | Updated on December 31, 2019 Published on December 31, 2019

India’s Current Account Deficit (CAD) narrowed sharply to 0.9 per cent of GDP in the July-September (Q2) of FY2019-20 from 2.9 per cent in the year-ago period and 2 per cent in the preceding quarter. This contraction in CAD was primarily on account of lower trade deficit.

CAD occurs when the value of goods and services imported exceeds the value of exports. A large CAD can cause the domestic currency to depreciate.

In absolute terms, the CAD in the reporting quarter (Q2) came down to $6.3 billion from $19 billion in the year-ago quarter and $14.2 billion in the preceding (April-June 2019) quarter. Trade deficit in the reporting quarter was lower at $38.1 billion when compared to $50 billion a year ago. Net services receipts increased by 0.9 per cent on a year-on-year (y-o-y) basis on the back of a rise in net earnings from computer, travel and financial services, the RBI said.

Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to $21.9 billion, increasing by 5.2 per cent from their level a year ago. In the financial account, net foreign direct investment was $7.4 billion, almost same level as in Q2 of 2018-19.

Foreign portfolio investment recorded net inflow of $2.5 billion, against an outflow of $1.6 billion in Q2 of 2018-19, on account of net purchases in the debt market.

Net inflow on account of external commercial borrowings to India was $3.2 billion when compared to $2 billion in Q2 of 2018-19.

There was an accretion of $5.1 billion to the foreign exchange reserves as against a depletion of $1.9 billion in Q2 of 2018-19. The CAD narrowed to 1.5 per cent of GDP in H1 (April to September) of 2019-20 from 2.6 per cent in H1 of 2018-19 on the back of a reduction in the trade deficit, which shrank to $84.3 billion in H1 of 2019-20 from $95.8 billion in H1 of 2018-19.

Published on December 31, 2019
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