The Reserve Bank of India today released India’s Balance of Payments (BoP) data for the fourth quarter i.e. Jan-Mar 2015-16. The highlight of the data was that India’s current account deficit (CAD) missed the positive territory by a very small margin.
The CAD narrowed sharply to US$ 0.3 billion in Q4 of 2015-16, which is slightly lower than US$ 0.7 billion in Q4 of 2014-15. The CAD now stands at 0.1 percent of GDP, compared to 1.3 percent in Q3 of 2015-16.
A current account deficit means that the country is importing more in dollar terms than it is exporting. India has been struggling with higher levels of CAD for a very long time now.
Source: TradingEconomics
According to RBI, the contraction in CAD was primarily on account of a lower trade deficit, but if we go by history, the fourth quarter has been better for the Indian economy. From the data presented in the chart above, it can be seen that India’s CAD for Q4 of 2013-14 stood at $1.2 billion. Evidence suggests that the first two quarters prove to be burdensome on the Indian economy, and therefore, there is not much reason to rejoice.
Net foreign direct investment (FDI) inflows eased to US$ 8.8 billion in Q4 of 2015-16, compared to US$ 9.3 billion in the same period a year ago.
Forex reserves (on a BoP basis) increased by US$ 3.3 billion in the fourth quarter of the fiscal ended March 2016.
For the full-year 2015-16, the CAD has shrunk to 1.1 percent of GDP relative to 1.3 percent in 2014-15 as trade deficit narrows. India’s trade deficit stood at US$ 130.1 billion, roughly 10 percent lower than US$ 144.9 billion in 2014-15. Net FDI inflows rose by 15.3 percent to US$ 36 billion on a YoY basis. This is yet another win for the Prime Minister Narendra Modi-led government as investors reaffirm their faith in India’s growth story.
Image: RBI
