India’s CAD increases two-fold to $7.2 bn in Q2

The Dollar Business Bureau

India’s current account deficit (CAD) in the second quarter of this fiscal increased two-fold to $7.2 billion or 1.2% of gross domestic product (GDP) on year-on-year basis, due to higher increase in merchandise imports, mainly oil, according to the Reserve Bank of India (RBI).

However, it is narrowed steeply from $15 billion or 2.5% of GDP compared to the preceding quarter of 2017-18.

“India’s CAD at $7.2 billion (1.2% of GDP) in Q2 of 2017-18 narrowed sharply from $15 billion (2.5% of GDP) in the preceding quarter, but was substantially higher than $3.4 billion (0.6% of GDP) in Q2 of 2016-17,” the RBI said on Wednesday.

“The widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit ($32.8 billion) brought about by a larger increase in merchandise imports relative to exports,” it added.

The CAD, on a cumulative basis, surged to 1.8% of GDP in the first six months of the current fiscal from 0.4% in same period last fiscal, due to widening of trade deficit.

India’s crude oil and petroleum products imports stood at 124.6 million tonnes valuing $43.5 billion in April-September period.

During the second quarter, net services receipts rose by 13.1% compared to a year ago, majorly on the back of an increase in net earnings from travel receipts and software services, the central bank said.

“Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $17.4 billion, increasing by 14.7% from their level a year ago,” the RBI said.

Net foreign direct investment (FDI) moderated to $12.4 billion in the September quarter from its level in same period a year ago. In addition, portfolio investment recorded a drop with $2.1 billion net inflow in second quarter of 2017-18, as against the $6.1 billion in same quarter last year on the back of net sale in equity market, it said.

In second quarter of 2017-18, there was an accretion of $9.5 billion to the foreign exchange reserves (on BoP basis) as compared with $8.5 billion in Q2 of 2016-17 and $11.4 billion in the preceding quarter, the RBI said.

During April-September period of the current fiscal, India's trade deficit surged to $74.8 billion from $49.4 billion in the same period of last fiscal.