Current account deficit widens to 2% of GDP on higher oil import bill

Current account deficit (CAD)- excess of country’s imports of goods and services over its exports- touched nearly two percent of the GDP as oil prices rose and electronics imports surged. This could be a blow to the Rupee which is already weakening.

India’s current account in the balance of payments ended in a deficit of $ 13.5 billion or 2 per cent of GDP in the quarter ended December 2017, up from $ 8.0 billion or 1.4 per cent of GDP in the quarter: ended December 2016 and $ 7.2 billion (1.1 per cent of GDP) in the preceding quarter ended September 2016, according to the preliminary data released by the Reserve Bank of India.

Detailed analysis of data indicates that the CAD widened due to higher trade deficit of $ 44.1 billion on account of larger increase in merchandise imports, mainly crude oil and other petroleum product imports, which account for more than 40% of India’s overall merchandise import bill. oil prices have risen by over $10 a barrel between December 2016 and December 2017. Of late there is a surge in electronics imports bill as well according to market experts.

The other major component of CAD is services. Net services receipts increased by 17.8 per cent on a y-o-y basis mainly on the back of a rise in net earnings from software services and travel receipts. Also private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $ 17.6 billion. They rose 16 per cent from their level a year ago.

In the capital account which comprises foreign investments and overseas borrowings and NRI deposits, while net foreign direct investment at $ 4.3 billion in Q3 of 2017-18 was lower than $ 9.7 billion in Q3 of 2016-17,portfolio investment recorded net inflow of $ 5.3 billion in Q3 of 2017-18- as against an outflow of $ 11.3 billion in Q3 last year - on account of net purchases in both the debt and equity markets. Net NRI deposits amounted to $ 3.1 billion in Q3 of 2017-18 as against net repayments of $ 18.5 billion a year ago

The overall balance of payments, including the position in current account and capital account ended in a surplus of $9.4 billion on account of a $22 billion surplus in capital account.