CAD in Q1 declines y-o-y, but shoots up sequentially

Even as India’s current account deficit in balance of payments — broadly the revenue shortfall in the country’s income and expenditure account with the rest of the world — showed a sharp decline on y-o-y basis in Q1 of the ongoing fiscal 2014-15, the amount showed reversal of reduction in the previous three quarters. Thus, CAD, placed at $7.8 billion in Q1, was around a third of $21.8 billion in Q1 of 2013-14, but it reflected a reversal of decline to $5.1 billion in Q2, $4.2 billion in Q3 and only $1.2 billion in Q4 of the preceding fiscal. Obviously, the policymakers have to continue keeping vigil on this count, for any global financial upheaval affects more badly the economies with weak current account balances.

The improvement in CAD on y-o-y basis followed a noticeable improvement in merchandise trade due to 11 per cent increase in export on one hand and 6.5 per cent drop in import on the other. The decline in import was due to a steep drop in gold import to $7 billion, less than half of $16.5 billion in Q1 of 2013-14. In fact, non-gold and non POL import showed a marginal increase between the two quarters as crude oil and petroleum product export-import, the largest commodity group in merchandise trade, has remained broadly at the year-ago level.

Services have as usual lent support in reducing the merchandise trade deficit, even as net service income increased only marginally from $16.9 billion to $17.1 billion. Telecom, computer and information services netted $17.2 billion ($16.2 billion). A host of other services, including travel and tourism, business services, transport etc., together did not generate much on net basis.

Secondary income, mainly workers’ remittances, declined from $16.7 billion to $16.4 billion. This important source of current incomes seems to have reached a plateau of around $16 billion average a quarter. Net outgo on account of dividend, profit repatriations etc. increased from $4.8 billion to $6.7 billion. Fallout of increasing FDI into the country, the outgo on this account is on the rise. Thus, with reduced support from services and increasing outgo in primary income, the improvement in CAD sans secondary income was lesser than that in merchandise trade.

CAD was assessed at 1.7 per cent of GDP), against 4.8 per cent in this period a year ago.

In capital account, foreign direct investment increased from $6.5 billion to $8.2 billion, while portfolio investment by FIIs showed a robust inflow of $12.4 billion, against an outflow of $0.2 billion caused by massive fund pullout from debt securities.

Loans (net) availed by commercial banks witnessed an outflow of $2.6 billion owing to higher repayments of overseas borrowings and a build-up of their overseas foreign currency assets. NRI deposits yielded $2.4 billion ($5.5 billion). External commercial borrowings) were at $1.7 billion ($0.9 billion). After recording a net outflow in the three preceding quarters, net trade credits and advances recorded a net inflow of $0.2 billion, which was though lower than that of $2.5 billion in Q1 of 2013-14.

On a BoP basis, there was a net accretion of $11.2 billion to India’s foreign exchange reserves as against a drawdown of $0.3 billion in Q1 of 2013-14.

The valuation gain, reflecting the depreciation of the US dollar against major currencies, amounted to $0.7 billion during April-June 2014 as compared to a loss of $9.2 billion during the same period of the preceding year.