Widening trade gap pushes CAD sharply to 2.4% of GDP

CAD refers to the difference between inflow and outflow of foreign exchange that has a bearing on exchange rate.

Illustration: Uttam Ghosh/Rediff.com

India's current account deficit (CAD) rose sharply to $14.3 billion -- or 2.4 per cent of GDP -- at the end of first quarter of 2017-18, mainly on account of an increased trade gap.

CAD stood at $0.4 billion, or 0.1 per cent of GDP, in April-June of 2016-17. The figure compares with $3.4 billion (0.6 per cent) for the quarter ended March 2017.

"The widening of CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit ($41.2 billion) brought about by a larger increase in merchandise imports relative to exports," said the Reserve Bank (RBI) while issuing the document on Developments in India's Balance of Payments during April-June of 2017-18.

In general terms, CAD refers to the difference between inflow and outflow of foreign exchange that has a bearing on exchange rate.

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

Net services receipts, too, increased 15.7 per cent on a y-o-y basis, on the back of a rise in net earnings from travel, construction and other business services.

In the financial account, net foreign direct investment at June-end almost doubled to $7.2 billion in comparison to the inflows in the same period last fiscal.

The data showed that net portfolio investment recorded substantial inflow of $12.5 billion, primarily in the debt segment.

The RBI further said that in the June quarter this fiscal, there was an accretion of $11.4 billion to the foreign exchange reserves compared to $7 billion in the corresponding three months of the previous fiscal.