CAD narrowed down to 1.7 per cent of GDP in Q1 of 2014-15: RBI
CAD in Q1 of 2014-15 narrowed down to 1.7 percent due to fall in gold imports.
Reserve Bank of India on 1 September 2014 released the data on Balance of Trade and Balance of Payments.
According to the Balance of Trade data, Current Account Deficit (CAD) of India narrowed down sharply to 1.7 percent of Gross Domestic Product (GDP) in the Quarter 1 (Q1) of the fiscal year 2014-15 as compared to 4.8 percent in the Q1 of 2013-14. Q1 refers to the period April–June.
In absolute terms, the CAD in Q1 of 2014-15 was US$ 7.8 billion as compared to US$ 21.8 billion in Q1 of 2013-14.
However, CAD was higher than 0.2 percent of GDP (US$ 1.2 billion) in the Quarter 4 (January-March) of 2013-14.
Reasons for Narrowing of CAD
• The narrowing down of CAD in Q1 of 2014-15 was mainly on account of reduction in trade deficit (contributed by increase in exports and decline in imports), and a steep decline in gold imports.
• Decline in imports was primarily led by a steep 57.2 percent fall in gold imports, which was significantly lower than US$ 16.5 billion in the April-June quarter of 2013-14.
• Trade deficit contracted by about 31.4 per cent to US$ 34.6 billion in Q1 of 2014-15, from US$ 50.5 billion in Q1 of 2013-14.
• Exports increased by 10.6 percent in the first quarter of 2014-15 to US$ 81.7 billion. Imports moderated by 6.5 percent to US$ 116.4 billion.
The CAD had touched a record high of US$ 87.8 billion (4.8 percent) in 2012-13 fiscal mainly on account of steep increase in gold imports. After government imposed import restrictions on the precious metal, the CAD for the entire fiscal 2013-14 had narrowed down to US$ 32.4 billion (1.7 percent).
RBI data on Balance of Payments
As per the Balance of Payments (BoP) data released on September 1, 2014, both net foreign direct investment and net portfolio investment recorded inflows in the first quarter of 2014-15.
While net inflow on account of portfolio investment was US$12.4 billion, net FDI inflow was substantially higher at US $8.2 billion.
Net inflows of NRI deposits amounted to $2.4 billion in Q1 of 2014-15 as compared to $5.5 billion in the Q1 of 2013-14.
This is the third straight quarter in which there has been a net addition to foreign exchange reserve, reflecting an improvement in the BoP situation.