Lower trade deficit helped India narrow down the current account deficit (CAD) to $0.3 billion in the April-June quarter of 2016-17, significantly lower than $6.1 billion in the year-ago quarter.

As a percentage of GDP, the CAD, which arises when a country’s total imports of goods, services and transfers are greater than exports, in the reporting quarter was at 0.1 per cent, against 1.2 per cent in the year-ago quarter.

Lower trade deficit helps

Reserve Bank of India said the contraction in the CAD was primarily on account of a lower trade deficit ($23.8 billion) than in April-June (Q1) period of last year ($34.2 billion) and in the preceding (January-March) quarter ($24.8 billion).

Merchandise imports declined sharply (by 11.5 per cent) vis-à-vis merchandise exports (which declined by 2.1 per cent), leading to a lower trade deficit in Q1 of 2016-17.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $15.2 billion, declining from their level in the preceding quarter ($15.7 billion) as well as from a year ago ($16.2 billion).

Net foreign direct investment moderated to $4.1 billion in Q1 this fiscal from $10 billion in Q1 of FY16 and $8.8 billion in the preceding January-March quarter.

Portfolio investment

On the other hand, portfolio investment, recorded a net inflow of $2.1 billion in Q1 of 2016-17 as against a marginal outflow in the corresponding period of last year and an outflow of $1.5 billion in the preceding quarter, primarily reflecting net inflow in the equity component. Accretion to non-resident Indian (NRI) deposits at $1.4 billion moderated in Q1 of 2016-17 from Q1 last year ($ 5.9 billion) as well as in the preceding quarter ($4.39 billion).

According to Madan Sabnavis, Chief Economist, CARE Ratings, the CAD will continue to remain in deficit in the second quarter as well (at about 0.5 per cent of GDP) as there is a possibility of commodity prices firming up and non-trade inflows such as private transfer receipts and NRI deposits are showing a declining trend. However, the deficit will be manageable, he added.