India’s Current Account Deficit narrows down to 1.7 per cent of GDP

New Delhi: India's Current Account Deficit narrowed sharply to 1.7 percent of GDP in the April-June quarter of this fiscal mainly on account of reduction in trade deficit, and a steep decline in gold imports. "The lower CAD was primarily on account of a contraction in the trade deficit contributed by both a rise in exports and a decline in imports," RBI said in a statement.

CAD narrowed sharply to USD 7.8 billion (1.7 per cent of GDP) in the first quarter of the 2014-15 fiscal, from USD 21.8 billion (4.8 per cent of GDP) in the year-ago period. However, it was higher than USD 1.2 billion (0.2 percent of GDP) in the fourth (January-March) quarter of the previous fiscal, 2013-14. Decline in imports was primarily led by a steep 57.2 percent fall in gold imports, which amounted to USD 7 billion - significantly lower than USD 16.5 billion in the April-June quarter of 2013-14, RBI said. Trade deficit contracted by about 31.4 per cent to USD 34.6 billion in Q1 2014-15, from USD 50.5 billion in Q1, 2013-14.

Exports increased by 10.6 percent in the first quarter of 2014-15 to USD 81.7 billion. Imports moderated by 6.5 percent to USD 116.4 billion. The CAD, which is the difference between the inflow and outflow of foreign currency, had touched a record high of USD 87.8 billion (4.8 percent) in 2012-13 fiscal mainly on account of steep increase in gold imports.

It had narrowed to USD 32.4 billion (1.7 percent) for the entire 2013-14 fiscal after government imposed import restrictions on the precious metal. As per the Balance of Payments (BoP) data, on net basis, both foreign direct investment and portfolio investment recorded inflows in the first quarter of 2014-15. While net inflow on account of portfolio investment was USD 12.4 billion, net FDI inflow was substantially higher at USD 8.2 billion. "There was a net accretion of USD 11.2 billion to India's foreign exchange reserves in first quarter of 2014-15 as against a draw down of USD 0.3 billion in Q1 of 2013-14," RBI said.

This is the third straight quarter in which there has been a net addition to foreign exchange reserve, reflecting an improvement in the BoP situation. Net inflows of NRI deposits amounted to USD 2.4 billion in June quarter of 2014-15, as compared to USD 5.5 billion in the same quarter of previous fiscal.