During Q1 2016-17: Big drop in net foreign direct investment; Big decline in merchandise imports by 11.5 per cent and merchandise exports by 2.1 per cent; Fall in remittances by Indians employed overseas
Preliminary data on India’s balance of payments (BoP) for the first quarter (Q1) i.e., April-June, 2016-17 released by Reserve Bank of India shows that India’s current account deficit (CAD) had narrowed to US$ 6.1 billion (1.2 per cent of GDP) in Q1 of 2015-16 from US$ 7.8 billion (1.6 per cent of GDP) a year ago.
The contraction in the CAD has been primarily on account of a lower trade deficit (US$ 23.8 billion) than in Q1 of last year (US$ 34.2 billion) and in the preceding quarter (US$ 24.8 billion).
On a BoP basis, merchandise imports declined sharply (by 11.5 per cent) vis-à-vis merchandise exports (which declined by 2.1 per cent), leading to a lower trade deficit in Q1 of 2016-17.
India’s CAD has narrowed significantly due to the merchandise trade deficit that had contracted on a year-on-year (y-o-y) basis due to a larger absolute decline in merchandise imports relative to merchandise exports.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to US$ 15.2 billion in Q1 2015-16, declining from US$ 16.2 billion during the corresponding period in 2015-16. Even this was a marginal decline from the total private transfer receipts a year ago.
Portfolio investment, recorded a net inflow of US$ 2.1 billion in Q1 of 2016-17 as against a marginal outflow in the corresponding period of last year and an outflow of US$ 1.5 billion in the preceding quarter, primarily reflecting net inflow in the equity component.
Net foreign direct investment, recorded a big drop and moderated to US$ 4.1 billion in Q1 of 2016-17 from US$ 10.0 billion in Q1 of 2015-16 and US$ 8.8 billion in the preceding quarter i.e., Q4 of 2015-16.
Foreign exchange reserves, on a BoP basis, increased by US$ 7.0 billion in Q1 of 2016-17 as compared with an accretion of US$ 11.4 billion in Q1 of 2015-16.