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Despite soaring gold import, lower crude narrows current account deficit to 2% in Q1.

Date: 01-10-2019
Subject: Despite soaring gold import, lower crude narrows current account deficit to 2% in Q1
MUMBAI: Lower crude prices and higher invisible receipts have helped the country narrow the current account deficit (CAD) to 2 per cent of GDP or at $14.3 billion in the first quarter, down 30 basis points (bps) from year-ago, the Reserve Bank said on Monday.

In the year-ago period, CAD had printed at 2.3 per cent of GDP or $15.8 billion.

"CAD contracted on an annualised basis primarily due to higher invisible receipts at $31.9 billion compared to $29.9 billion a year ago," RBI said.

The net foreign direct investment was $13.9 billion in Q1 up from $9.6 billion last year.

During the quarter, foreign portfolio investment recorded net inflow of $4.8 billion as against an outflow of $8.1 billion in Q1 of 2018-19, on account of net purchases in both debt and equity markets.

Net inflow on account of external commercial borrowings was $6.3 billion as against an outflow of $1.5 billion a year ago.

Net services receipts rose 7.3 per cent annualised, mainly on the back of a rise in net earnings from travel, financial services and telecommunications, computer and information services.

There was an accretion of $14 billion to the foreign exchange reserves during the quarter as against a depletion of $11.3 billion in Q1 of 2018-19, RBI said.

Aditi Nayar, the principal economist at rating agency Icra, described the narrowed numbers as "a positive surprise."

"At 2 per cent, CAD printed modestly lower than expected helped by lower-than-anticipated outflows of primary income. Additionally, healthy growth in surplus of services and secondary income, as well as lower crude prices helped narrow the gap, despite a spike in gold imports and jump in prices," Nayar said.

Gold imports rose sharply by 35.6 per cent to $11.4 billion from $8.4 billion.

Based on the July-August trends, she expects CAD to decline substantially to $10-11 billion in Q2 from $19 billion, due to moderate crude prices, weak appetite for gold and subdued domestic demand for the yellow metal.

Icra expects CAD to marrow further to $52 billion or 1.8 per cent of GDP for full year to March 2020 from $57.2 billion or 2.1 per cent of GDP in FY19, unless crude prices jump or domestic investment and consumption demand display a revival." 

Source: timesofindia.indiatimes.com

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