Current account deficit falls to 0.2% of GDP in Q4 of FY15

The country's current account deficit (CAD) narrowed sharply to $1.3 billion, or 0.2 per cent of GDP, in the fourth quarter of the last financial year on a sequential basis mainly on account of a lower trade gap.

The same shrank to 1.3 per cent of GDP for full financial year 2014-15.

"On a quarter-on-quarter basis, CAD narrowed sharply to $1.3 billion (0.2 per cent of GDP) in fourth quarter of financial year 2014-15 from $8.3 billion (1.6 per cent of GDP) in the third quarter," the Reserve Bank said on Wednesday.

"The reduction in CAD in fourth quarter was primarily on account of lower trade deficit as net earnings through services and primary income (profit, dividend and interest) witnessed a decline in quarter-on-quarter terms though secondary income recorded a marginal increase of 0.4 per cent," the central bank said in its 'Developments in Balance of Payments' report.

On a year-on-year basis, however, CAD (which indicates imports of goods services and transfer are higher than their exports) in fourth quarter was a shade higher than $1.2 billion, or 0.2 per cent of GDP, in the same quarter of financial year 2013-14.

For the full fiscal (financial year 2014-15), the current account deficit shrank to $27.5 billion, or 1.3 per cent of GDP, from $32.4 billion, or 1.7 per cent of GDP, a year ago, RBI said.

Merchandise trade deficit at $31.7 billion in fourth quarter contracted sharply on a Q-o-Q basis on account of a larger decline in merchandise imports (13.4 per cent) than in merchandise exports (10.4 per cent).

However, in terms of Y-o-Y changes, the trade deficit in fourth quarter widened marginally as exports registered a larger decline (15.4 per cent) than imports (10.4 per cent).

"In financial year 2014-15, trade deficit narrowed to $144.2 billion from $147.6 billion last year," the data showed.

During the January-March period, on a balance of payment (BoP) basis, there was highest ever net accretion of $30.1 billion to the foreign exchange reserves in a single quarter.

"It was more than double the accretion in the preceding quarter and almost four times of the reserves accrued in fourth quarter, signifying record increase in capital inflows and dip in current account deficit," RBI said.

On a cumulative basis, the overall BoP during financial year 2014-15 showed improvement over the preceding year, RBI said.

Lower CAD, on the back of contraction in trade deficit and marginal improvement in the net invisible earnings, along with a sizable increase in net financial flows enabled a large build-up of reserves, the central bank said.

Meanwhile, the RBI said it added a whopping $61.4 billion to the foreign exchange reserves in financial year 2014-15 compared to $15.5 billion in the previous fiscal.

At the end of March, 2015, the level of foreign exchange reserves stood at $341.6 billion.

Domestic rating agency Care Ratings attributed the shrinkage in the trade deficit (imports exceed exports) at $144 billion to higher software receipts of $70 billion and invisibles of $65.5 billion.

It said in the last fiscal, total foreign investment was $73.5 billion - $32.6 billion from FDIs and $40.9 billion from FIIs. NRIs contribution was at $12 billion.

Going ahead, "we could expect the CAD to be range-bound.

Under the current conditions of low crude oil prices ($60-70 per barrel range), stagnant exports given the limited pick up in the world economy, and some pick up in software receipts, the CAD would be in the range of 1.5-2 per cent of GDP this fiscal (financial year 2015-16)," Care said.