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After 10 years, India's coffers are finally overflowing

  • India may post its first current account surplus in almost a decade
  • This has happened on the back of significant contraction in imports
Indian coffers


The Good news

The current account deficit (CAD) has narrowed sharply to just $300 million, or 0.1% of the gross domestic product (GDP), in the June quarter, driven by lower trade deficit on deeper import contraction, the Reserve Bank said.According to the investopedia, the current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports. 


FM more than happy

Finance Minister Arun Jaitley had in fact said last year, that India's current account deficit will "hopefully" be less than 1% of the GDP in this fiscal. The deficit had narrowed to 1.6%  in the October-December quarter from 2%  a quarter earlier on the back of a slump in oil prices.

The Economic Survey earlier this year which had predicted that the Indian economy will grow at 7-7.5% in the fiscal year to March 2017, had predicted, that the 2016/17 current account deficit will be around 1-1.5% of the GDP.


How CAD was Bad earlier  

The RBI also said that the CAD, a key factor monitored while assessing a country's external position, had stood at a high of $6.1 billion, or 1.2% of GDP, in the year-ago period. Trade deficit for the reporting period came down to $23.8 billion from $34.2 billion in the year-ago period, as per the preliminary data on the balance of payments published by the central bank. A high CAD, which was close to 5% of the GDP in 2012-13, was one of the prime reasons which led to nervousness in the currency markets, making rupee the worst performing emerging market currency in  2013. 

This forced the government to take unconventional measures, including restrictions on gold imports to arrest the deficit, and according to some analysts this led to an uptick in smuggling of the precious metal which does not get captured in the official data. 

Other key transactions

The net services receipts declined to $15.77 billion from $17.75 billion a year ago due to a fall in net earnings on account of travel, financial services and other business services, the central bank  added. In what hints at a dip in remittances, the private transfer receipts, which mainly represents the money sent by the Indian diaspora, declined to $15.2 billion from $17.13 billion a year ago, it said. There was a moderation in the accretion of deposits from the non-residents as well at $1.4 billion, the bank said. 

A jump in repayments under external commercial borrowings led to a net outflow of $3.22 billion under loans to India in the quarter as against net borrowings of $5.65 billion in the year-ago period, it said.

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