MUMBAI: A surging import bill, which included crude oil, has resulted in widening of the current account deficit (CAD) — the gap between imports and exports of goods & services — to 1.9 per cent of the gross domestic product (GDP) in FY18 from 0.6 per cent in FY17.
Oil imports resulted in net outflows of $71 billion in FY18, up from $55 billion in FY17. However, oil was not the only culprit with non-oil imports too up 18 per cent to $361 billion from $305 billion in FY17 (see net difference in graphic). Also contributing to the increase in the import bill was the rise in gold purchases. The net outgo due to gold rose 22 per cent to $33.5 billion from $27 billion a year ago. While the current account deficit is higher than last year, it is still within manageable limits.
On the positive side, worker remittances in FY18 improved to $40.3 billion from $35.3 billion in FY17. IT companies also increased their earnings with exports of computers services earning $72.2 billion, up from $70.1 billion in FY18.
According to data released by the Reserve Bank of India, for the full year, India’s trade deficit increased 42 per cent to $160 billion in FY18 from $112.4 billion in FY17. The higher imports were partly offset by an increase in net invisible receipts, which were higher in FY18, mainly due to increase in net services earnings and private transfer receipts.
On the capital account front, gross foreign direct investment inflows to India increased to $61 billion in FY18 from $60.2 billion in FY17. However, with investors cashing out, net FDI inflows in FY18 moderated to $30.3 billion from $35.6 billion in FY17.
The capital account was gained by a net inflow of $22.1 billion under foreign portfolio investments — almost thrice the inflow of $7.6 billion seen a year ago. This resulted in a net accretion of $43.6 billion to the foreign exchange reserves on a balance of payment basis, which is the sum of current account and capital account.
For the quarter ended March 2018, the current account deficit stood at $13 billion (1.9 per cent of GDP), up from $2.6 billion (0.4 per cent of GDP) in Q4 of 2016-17, but moderated marginally from $13.7 billion (2.1 per cent of GDP) in the preceding quarter.
The widening of the CAD on a year-on-year (y-o-y) basis was primarily because of a higher trade deficit ($41.6 billion) brought about by a larger increase in merchandise imports relative to exports. Net services receipts increased by 8.8 per cent on a y-o-y basis, mainly on the back of a rise in net earnings from software services and other business services.
During the quarter, private transfer receipts — mainly representing remittances by Indians employed overseas — amounted to $18.1 billion, increasing by 15.1 per cent from their level a year ago. The net FDI for the quarter at $6.4 billion was higher than $5 billion in the corresponding quarter last year. However, portfolio investment recorded net inflow of $2.3 billion in Q4FY18, as compared with an inflow of $10.8 billion last year. In Q4 of 2017-18, there was an accretion of $3.2 billion to the foreign exchange reserves as compared with an accretion of $7.3 billion in Q4 of 2016-17.
Source: timesofindia.indiatimes.com