CAD drops to 1.3 per cent in Q3, BOP increased to USD 4.1 billion

Country’s apex bank, Reserve Bank of India released the figures of CAD (current account deficit) and BOP (balance of payment) for the third quarter of the current fiscal on Monday evening.

Key Features of India’s BoP in Q3 of 2015-16

India’s current account deficit (CAD) at USD 7.1 billion (1.3 per cent of GDP) in Q3 of 2015-16 was lower than USD 7.7 billion (1.5 per cent of GDP) in Q3 of 2014-15 and USD 8.7 billion (1.7 per cent of GDP) in the preceding quarter. The contraction in CAD was primarily on account of a lower trade deficit (USD 34.0 billion) than in Q3 of last year (USD 38.6 billion) and USD 37.4 billion in the preceding quarter. Countries exports vis-à-vis imports have seen a declining trend over the past months which has reduced the difference.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to USD 15.8 billion, a decline from their level in the preceding quarter as well as from a year ago. This has primarily been affected down by the slowing of Middle Eastern economy which are an important source of the total transfers.

After moderating in Q2, net foreign direct investment (FDI) again picked up and stood at USD 10.8 billion in Q3. There has been a marginal net outflow of USD 0.2 billion in portfolio investment in Q3 of 2015-16 as against net outflow of USD 3.5 billion in the preceding quarter; equity outflows in Q3 were almost offset by inflows into the debt segment. Net outflow has mainly been due to the equity market mayhem which has been witnessed in the last quarter of the 2015.

Foreign exchange reserves (on a BoP basis) increased by USD 4.1 billion in Q3 of 2015-16. BoP is basically the record of all economic transactions between the residents of the country and the rest of the world in a particular period.

On a cumulative basis, the CAD narrowed to 1.4 per cent of GDP in April-December 2015 from 1.7 per cent in the corresponding period of 2014-15, on the back of the contraction in the trade deficit. India’s trade deficit narrowed to USD 105.6 billion in April-December 2015 from USD 113.4 billion during the same period of 2014-15. Net FDI inflows during April-December 2015 rose sharply by 24.8 per cent over the level during the corresponding period of the previous year.

The key take away from the RBI release was increase in FDI for Q3. Good data make RBI policy meet a important one to watch out.