A large merchandise trade deficit of $41.6 billion — thanks to sharper increase in imports than exports — pushed India’s current account deficit (CAD) to $13 billion or 1.9% of GDP in Q4FY18, compared with a benign 0.4% of GDP in the year-ago quarter. The Q4 deficit was, however, slightly lower than the previous quarter’s $13.7 billion (2.1%); for FY18 as a whole, the CAD increased considerably to 1.9% from 0.6% in FY17.
Citing the risk of rising oil prices, Goldman Sachs recently upped India’s CAD forecast for FY19 to 2.4% from 2.1%.
According to the data released by the Reserve Bank of India (RBI) on Wednesday, the capital account saw net inflows of a robust $25 billion in January-March quarter, higher than $22.5 billion in the previous quarter and far above $10.4 billion in the year-ago quarter. So, despite the relatively high CAD in Q4, it was financed comfortably, and there was an accretion of $13.2 billion to the foreign exchange reserves.
Even though the CAD was much lower in the Q4FY17, the accretion to the reserves was just $7.3 billion.
There had been a slowing of inflows from foreign portfolio investors (FPIs) until recently; while this has been a cause for concern, economic affairs secretary Subhash Garg has said that these investors “are now back”. Till June this financial year, there was a net FPI outflow of Rs 48,324 crore compared with a net inflow of Rs 1,44,682 crore in FY18.
Net services receipts increased 8.8% on a year-on-year basis in Q4FY18 mainly on the back of a rise in net earnings from software services and other business services. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.1 billion, up 15.1% from their level a year ago.
In the financial account, net foreign direct investment at $6.4 billion in Q4FY18 was higher than the $5 billion in Q4FY17.
Portfolio investment recorded net inflow of $2.3 billion in Q4FY18 compared with an inflow of $10.8 billion in Q4FY19 on account of moderation in net purchases in both the debt and equity markets. Net receipts on account of non-resident deposits amounted to $4.6 billion in Q4 against $2.7 billion a year ago.
As for the whole of FY18, India’s trade deficit increased to $160 billion from $112.4 billion in FY17. Net invisible receipts were higher in FY18 mainly due to increase in net services earnings and private transfer receipts. “Gross FDI inflows to India increased to US$61.0 billion in 2017-18 from US$60.2 billion in 2016-17. Net FDI inflows in 2017-18 moderated to US$30.3 billion from US$35.6 billion in 2016-17. Portfolio investment recorded a net inflow of US$22.1 billion in 2017-18 as compared with US$ 7.6billion a year ago. In 2017-18, there was an accretion of US$43.6 billion to the foreign exchange reserves (on a BoP basis),” the RBI said.