Higher trade gap pushes FY18 CAD over three times to $48.7 billion
Current account deficit (CAD) jumped over three times to USD 48.7 billion, or 1.9 percent of the country's GDP, in FY18 from USD 14.4 billion or 0.6 percent in the previous year, driven by higher trade deficit, Reserve Bank said today.
For the March quarter, CAD, which is the difference between forex receipts and payments, rose manifold to over USD 13 billion, or 1.9 percent of GDP, from a low USD 2.6 billion, or 0.9 percent, in the year-ago period, the RBI said.
In the December quarter, the deficit stood at a higher 2.1 percent.
The CAD is a keenly watched space that signifies the strength of an economy from an external sector point of view and also influences the currency markets.
In 2013, the rupee was affected significantly because of a record high CAD that shot past 5 percent of GDP.
Trade deficit for the entire fiscal shot up to USD 160 billion from USD 112.4 billion, the central bank said, adding earnings from services increased to USD 77.6 billion from USD 68.3 billion.
Gross foreign direct investment rose marginally to USD 61 billion, while there was a sharper moderation on a net basis to USD 35.6 billion from USD 30.3 billion in the year-ago period.
However, portfolio flows from investors zoomed-up to USD 22.1 billion for FY18 as against USD 7.6 billion in FY17.
There was an accretion of USD 43.6 billion to the forex reserves during the fiscal year, the apex bank said.
For the quarter, trade deficit widened to USD 41.6 billion primarily due to an increase in merchandise imports.
Private transfer receipts, mainly representing remittances by NRIs, were 15.1 percent up at USD 18.1 billion for the quarter, it said.
The net FDI improved to USD 6.4 billion for the March quarter from USD 5 billion a year ago, while the portfolio flows were majorly impacted with a net inflow of USD 2.3 billion as against USD 10.8 billion a year ago.
Net receipts on account of non-resident deposits amounted to USD 4.6 billion in the reporting quarter compared to USD 2.7 billion a year ago, it said.
The forex kitty rose by USD 13.2 billion compared to USD 7.6 billion in the same quarter last year, it said.
Commenting on the numbers, Aditi Nayar, principal economist at domestic agency Icra said, though the numbers have deteriorated overall, it was driven largely by the massive increase in Q4 which stood at USD 13 billion, and was expected.
"Q4 deficit, which is close to the full year gap recorded in FY17, underscores that rising commodity prices have on the external balances of net importers like India," she said, adding the full-year rise was driven to some extent by the sharper outflow of primary income.
She also projected higher CAD for FY19 at USD 65-70 billion or 2.4 percent due to higher crude prices which may average at USD75/barrel in FY2019 up from USD56 in FY2018, and an 8 percent rise in net import volumes, which would boost net oil imports by USD 30 billion to USD100 billion in FY2019.
But on a positive side, she said higher crude prices and a weaker rupee would improve remittances and the export competitiveness.