India’s current account deficit narrows to 0.2% of GDP in Q4 FY14

In a big sigh of relief to Indian policymakers concerned over the deteriorating macro-economic indicators of the country, Indian Current Account Deficit (CAD) narrowed sharply to $1.2 billion, or 0.2 percent of GDP in the January-March quarter of FY14 as compared to $18.1 billion, or 3.6 percent of GDP in the same quarter of previous fiscal. The contraction in CAD was mainly driven by significantly narrowing in trade deficit, coupled with a rise in net invisibles' receipts. During the financial year 14, India's current account deficit (CAD) sharply narrowed to 1.7 percent of GDP or $32.4 billion from $87.8 billion, or 4.7 percent of GDP in FY13. Trade deficit during the financial year 2014 contracted significantly to $138.59 billion as compared to $190.34 billion in the FY13 mainly on the back of declined imports particularly gold imports and growth witnessed in country’s overall exports. Gold and silver imports fell by 40.02% to $33.46 billion in FY14 due to the stern Government’s norms like high customs duty of 10% and existing 80/20 rule under which 20% of all gold imports by importers has to be re-exported. The net inflows declined to $48.8 billion during FY14 against $89 billion in FY13 mainly due to lower foreign direct investment flows, net repayment of loans and trade credit and advances. The balance of payment (BoP) increased to $15.5 billion in FY14 up from $3.83 billion in FY13. Current account deficit (CAD), which represents the difference between a country's total imports of goods, services and transfers and their exports, is a key indicator of a country’s external vulnerability. A widening CAD usually exerts downward pressure on the domestic currency, making imports costlier. The improvement in CAD in the last financial year is likely to continue in the new fiscal year mainly on the back of narrowing trade deficit.