India's current account gap narrows in fiscal fourth quarter on improved trade balance

An Indian Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

Swati Bhat-JUNE 28, 2019

MUMBAI (Reuters) - India’s current account deficit narrowed to just 0.7 percent of gross domestic product in the fourth quarter of the fiscal year ended March 31, from 1.8 percent in the year-earlier period as the nation’s merchandise trade deficit contracted and its services surplus rose.

The Reserve Bank of India said on Friday that the current account deficit was $4.6 billion, against $13.0 billion in the quarter ended March 31, 2018.

The trade deficit is offset by private transfer receipts, mainly remittances back home by Indians employed overseas. They fell by 0.9 percent to $17.9 billion from a year earlier.

The central bank also said that foreign portfolio investment increased to a net inflow of $9.4 billion in the fiscal fourth quarter from just $2.3 billion in the year-earlier quarter.

 

The fiscal fourth quarter numbers were helped by dollar inflows into the country on expectations of Prime Minister Narendra Modi winning a second term at the general elections, as he did in a landslide at the April-May polls.

For all of the fiscal year ended March 31, the current account deficit widened to $57.2 billion, or 2.1 percent of GDP, against $48.7 billion, or 1.8 percent in 2017-18.

Some economists expect a further slight deterioration this financial year. Yes Bank’s Shubhada Rao sees it at 2.2 percent on the back of expectations of a wider trade deficit.

Recent signs of weakness in consumption, continued uncertainty over the global trade picture, and concerns about the impact of late monsoon rains on the rural economy may keep foreign portfolio investors cautious.

 

Separate and more recent data also issued on Friday showed India’s trade deficit widened to $15.36 billion in May versus $14.6 billion in May 2018.

The rupee has firmed by 1 percent so far this year, recovering some of its lost ground from last year.

Yes Bank’s Rao said that easy availability of liquidity because of dovish stances by major central banks together with India’s attractiveness under a strong and stable government able to push growth-focused reforms “is expected to accelerate the dollar inflows into the economy.”