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Published: Mon, September 18, 2017
Economy | By Melissa Porter

India's current account deficit widens to four-year high in April-June

India's current account deficit widens to four-year high in April-June

Meanwhile, the country's current account deficit in the first seven months of 2017 stood at $25.96 billion, up from some $4.47 billion compared to the January-July 2016 period. The deficit stood at just $0.4 billion or 0.1% of the GDP in the corresponding quarter of last fiscal and $3.4 billion or 0.6% of the GDP in Q4FY17.

The RBI today said this was largely because of a rise in trade deficit.

According to data released by Reserve Bank of India (RBI) on Friday, Q1 CAD was even higher than the fourth quarter 2016-17 deficit of $3.4 billion. The balance of payments for the April-June quarter stood at $11.4 billion as against $6.7 billion in the year-ago period on the back of foreign inflows.

Credit rating agency ICRA said that the CAD increase did not come as a surprise.

Despite the widening of CAD, the first quarter saw an accretion of $11.4 billion to the foreign exchange reserves (on a balance of payment basis) as compared with $7 billion in the same period previous year, thanks to a big capital account surplus of $25.4 billion. With the size of CAD almost as high as the 2016-17 level of $15 billion, Icra expects the 2017-18 deficit to double to around $30-32 billion (1.2-1.3 per cent of GDP).

In the financial account, net foreign direct investment doubled to $10.2 billion in the June quarter from $5 billion in the March quarter, while portfolio investments continued to rise for the second consecutive quarter at $12 billion. "Nevertheless, this should be adequately financed through a resumption in NRI deposits and FDI and FII inflows", said Aditi Nayar, principal economist, ICRA Ltd.

The faster growth in exports will provide relief to policymakers as they look for drivers to strengthen an economy struggling due to weak domestic demand.

During the period, private transfer receipts, mainly remittances by Indians employed overseas, at United States dollars 16.1 billion went up 5.3 per cent over the same quarter of the previous year.

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