CAD rises to 2.1% in Q2 2014-15

(CAD increases to 2.1% of GDP in Q2 2014-15 as against 1.2% of GDP in Q2 of 2013-14)

India’s current account deficit (CAD) increased to US$ 10.1 billion (2.1% of GDP) in Q2 of 2014-15 from US$ 5.2 billion (1.2% of GDP) in Q2 of 2013-14. However, it stands at US$ 7.8 billion (1.7% of GDP) in Q1 of 2014-15. The increase in CAD was primarily on account of higher trade deficit contributed by both a deceleration in export growth and increase in imports. On BoP basis, merchandise export growth decelerated to 4.9% in Q2 of 2014-15 from 11.9% in Q2 of 2013-14. On the other hand, the merchandise imports increased by 8.1% in Q2 of 2014-15 as against a decline of 4.8% in Q2 of 2013-14, largely due to a sharp rise in gold imports.

Net services receipts improved by 3.4% in Q2 of 2014-15 on a pick-up telecommunication, computer and information services from their level a year ago. Net outflow on account of primary income (profit, dividend and interest) amounting to US$ 6.9 billion in Q2 of 2014-15 was higher than the corresponding quarter of 2013-14 (US$ 6.3 billion) as well as the preceding quarter (US$ 6.7 billion).

In the financial account, net flows through foreign direct investment were stable; however, portfolio investment recorded inflows of US$ 9.8 billion as against an outflow of US$ 6.6 billion in Q2 of 2013-14. On a BoP basis, there was a net accretion of US$ 6.9 billion to India ’s foreign exchange reserves in Q2 of 2014-15 as against US$ 10.4 billion in Q2 of 2013-14.

    Major items of India ’s Balance of Payment                     

    Source: RBI

Balance of Payments(BoP) during April-September 2014 (H1 of 2014-15)

With a relatively higher growth in merchandise exports and marginal rise in merchandise imports, India ’s trade deficit narrowed to US$ 73.2 billion in H1 of 2014-15 from US$ 83.8 billion in H1 of 2013-14. Lower trade deficit coupled with a marginal rise in net services receipts moderated the CAD to US$ 17.9 billion in H1 of 2014-15 (1.9% of GDP) from US$ 26.9 billion in H1 of 2013-14 (3.1% of GDP). Net inflows under the capital and financial account (excluding change in foreign exchange reserves) rose to US$ 38.5 billion in H1 of 2014-15 from US$ 15.8 billion in H1 of 2013-14. Lower CAD and rise in flows under financial account resulted in an accretion to India’s foreign exchange reserve to the tune of US$ 18.1 billion in H1 of 2014-15 as against a drawdown of US$ 10.7 billion in H1 of 2013-14.