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India's Current Account Deficit Widenes To 2% Of GDP In Q3FY18


On Friday, RBI data revealed that India's CAD or current account deficit jumped to $13.5 billion which amounts close to 2% of the GDP during the third quarter of 2017-18 against $7.2 billion in the quarter ended September. CAD figure for the October-December period in FY 2016-17, stood at $8 billion.

RBI in a release said, "India's CAD at $13.5 billion (2 percent of GDP) in Q3 of 2017-18 increased from $8 billion (1.4 percent of GDP) in Q3 of 2016-17 and $7.2 billion (1.1 percent of GDP) in the preceding quarter".


Current account deficit (CAD) is the excess of country's imports of goods and services over its export. The ballooning of CAD is primarily attributed to increase in crude oil prices and higher import of electronic goods.

Why is high CAD bad for India?

The high CAD figure augurs bad for the economy as it leads to the free fall of domestic currency, hurts stock market sentiment, results in inflation etc.

"The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit ($44.1 billion) brought about by a larger increase in merchandise imports relative to exports." Crude oil and other petroleum products account for over 40% of the total merchandise import of India.

Services is another major component and as per the RBI, net services receipts increased by 17.8 percent on a y-o-y basis mainly on the back of a rise in net earnings from software services and travel receipts.

"Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $17.6 billion, increasing by 16 percent from their level a year ago," the RBI said.

"In the financial account, net foreign direct investment at $4.3 billion in Q3 of 2017-18 was lower than US$ 9.7 billion in Q3 of 2016-17. Portfolio investment recorded net inflow of $5.3 billion in Q3 of 2017-18 - as against an outflow of $11.3 billion in Q3 last year - on account of net purchases in both the debt and equity markets."

The RBI added that in Q3 2017-18, there was an accretion of $ 9.4 billion to the foreign exchange reserves (on BoP basis) as against depletion of $1.2 billion in Q3 of 2016-17.


The overall balance of payments (BoP) after considering current account and capital account ended in a surplus of $9.4 billion due to $22 billion surplus in capital account.

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