CAD tapers to lowest in two years
The slowdown in the economy resulted in weak imports, thereby causing India’s Current Account Deficit (CAD) to constrict in the last quarter.
Based on data released by the Reserve Bank of India (RBI), the period between January to March witnessed a shortfall of US$ 4.6 billion, which constitutes 0.7 per cent of the gross domestic product.
The gap is narrower in comparison to previous quarter’s US$7.7 billion, which constitutes 2.7 per cent of GDP. This is attributable to a muted consumption sentiment and decline in discretionary consumer purchases. As a result, there was a sharp decline in imports. Another reason could be the lower crude oil prices as well as a marked drop in investment income outflows.
The gap in merchandise trade reduced to US$ 35.2 billion in Q4FY19 as against a gap of US$ 41.6 billion in Q4FY18. A YoY growth of 5.8 per cent was observed in net services receipts. Private transfer receipts, which is an indicator of remittances by Indians employed overseas, dropped 0.9 per cent YoY to US$ 17.9 billion.
In Q4FY19, net foreign direct investment remained flat at US$ 6.4 billion. Meanwhile, the net inflow of foreign portfolio investment was at US$ 9.4 billion in Q4FY19 as compared to US$ 2.3 billion in Q4FY18. This is mainly on account of net purchases in the debt and equity market.
While merchandise trade deficit caused the CAD to remain at lower levels in January-March, the statistics paint a different picture for FY19 as a whole. For the year ended 31st March, 2019, India’s CAD widened to US$ 57.2 billion, or 2.1 per cent of GDP.
CAD is a principal indicator of the strength of a nation’s economy. It is computed by measuring the difference between the value of goods and services imported by a country and the value of its exports.