India’s current account deficit widened to $19.1 billion in the July-September 2018 quarter against $6.9 billion in the year-ago quarter, primarily on account of a higher trade deficit.

Current account deficit (CAD) arises when a country’s total imports of goods, services and transfers is greater than exports.

A widening CAD usually weakens the domestic currency. As a percentage of GDP, CAD in the reporting quarter (Q2 FY2019) rose to 2.9 per cent against 1.1 per cent in the year-ago quarter.

The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit at $50 billion, when compared to $32.5 billion a year ago, according to Reserve Bank of India’s statement on ‘Developments in India’s Balance of Payments’.

Net services receipts increased by 10.2 per cent on a y-o-y basis to $20.2 billion, mainly on the back of a rise in net earnings from software and financial services. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $20.9 billion, increasing by 19.8 per cent from their level a year ago.

FDI moderates

In the financial account, net foreign direct investment at $7.9 billion in Q2 of 2018-19 moderated from $12.4 billion in Q2 of 2017-18.

Portfolio investment recorded net outflow of $1.6 billion in Q2 of 2018-19 when compared to an inflow of $2.1 billion in Q2 last year on account of net sales in both the debt and equity markets.

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