Mumbai: The current account deficit narrowed to 1.2 percent of GDP at USD 6.2 billion in the June quarter on contraction in trade deficit and higher earnings from services exports, the Reserve Bank said Friday.
The June quarter CAD figure is lower than USD 7.8 billion, or 1.6 percent of GDP, in the year-ago period, but higher than 0.2 percent for the March quarter.
"This improvement is mainly on account of the merchandise trade deficit of USD 34.2 billion during the first quarter which contracted on year-on-year basis due to larger absolute decline in merchandise imports relative to merchandise exports," RBI said in the quarterly balance of payments data.
Reacting to the improvement in CAD, Economic Affairs Secretary Shaktikanta Das tweeted, "The first quarter CAD at 1.2 percent is better than last year. Have to remain watchful."
Rating agency Icra's senior economist Aditi Nayar said the improvement in CAD will bolster the rupee if there is a drop in sentiments related to emerging market currencies once the US Federal Reserve hikes rates.
She added: "Lower CAD largely reflects the lower net outflow of primary income. The benefit of the steep reduction in crude prices was offset by higher imports of other items and a decline in exports."
The central bank further said that higher net earnings through services and lower outflow on account of primary income, which includes profit, dividend and interest, also aided in the narrowing of the current account gap.
There was a "marginal drop" in private transfer receipts, which primarily includes remittances by the diaspora, to USD 16.2 billion, for the reporting period, the RBI said.
The net foreign direct investment inflows were up at USD 10.2 billion for the April-June period, as against USD 7.9 billion for the year-ago period, the central bank said.
The portfolio flows stood at a negative USD 2.3 billion for the period as against inflows of USD 12.4 billion a year ago, the RBI said, adding that this was almost entirely in the debt segment.
The NRI deposits more than doubled to USD 5.9 billion on a year-on-year basis, it said.
Net loans availed by banks witnessed an inflow of USD 5.4 billion, mainly on account of a fall in foreign currency assets held abroad by banks, the RBI said.
The net accretion to forex reserves was USD 11.4 billion on a BoP basis, which was marginally higher than USD 11.2 billion a year ago, RBI said.
If we include the effects of currency valuations, there was a wider change in forex reserves for the June period, the central bank said, adding that it grew to USD 14.4 billion this year as against USD 11.9 billion last year.
External commercial borrowings were at a negative USD 1.3 billion for the period, as against USD 1.3 billion a year ago, the data showed.
The CAD had narrowed to 0.2 percent of GDP in the March quarter, its lowest in a year, as global oil prices slumped while foreign investments remained robust.
The March quarter CAD was a stark turnaround from the record high of 4.8 percent of GDP registered in FY13.
