Current account deficit narrows to $1.3 billion of GDP in March quarter

Source: Economic Times

India’s external account remained sound with the current account deficit, the excess of spending overseas than earnings, at 0.2% of the GDP due to the slide in crude oil and commodity prices. A surge in capital flows led to the highest ever quarterly accrual to the foreign exchange reserves which are at life highs.

India’s current account deficit narrowed sharply to $1.3 billion, or 0.2% of the GDP in the March quarter from $8.3 billion, or 1.6% of GDP in the previous quarter, and the same level a year earlier, data from the RBI showed.

The reduction in the CAD in Q4 2014-15 was primarily on account of lower trade deficit as net earnings through services and primary income comprising crossborder profit dividend and income declined, said the central bank. The Indian rupee, which was pummelled in 2013 because of record high CAD, has remained stable despite some turmoil in the global currency market following sound monetary policies, and action by the government to improve supplies. The collapse in crude prices and the slowdown in demand for gold have also helped India improve its external account.

In the March quarter, on a balance of payments basis, which includes capital flows, there was the highest ever net accretion of $30.1 billion to India’s foreign exchange reserves in a single quarter; it was more than double the accretion in the preceding quarter and almost four times the reserves accrued in Q4 of 2013-14, the RBI said.

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