CAD narrows to $300 million in Q1

The current account deficit (CAD) narrowed sharply to just $300 million, or 0.1% of GDP, in the June quarter, driven by lower trade deficit on deeper import contraction, the Reserve Bank said on Wednesday.

The CAD, a key factor monitored while assessing a country’s external position, had stood at a high of $6.1 billion, or 1.2% of GDP, in the year-ago period. Trade deficit for the reporting period came down to $23.8 billion from $34.2 billion in the year-ago period, as per the preliminary data on the balance of payments published by the central bank. This was on the back of a sharp 11.5 percentage points contraction in imports against a 2.1% dip in merchandise exports, the data showed.

A host of brokerages and analysts were estimating the country may post its first current account surplus in almost a decade on the back of contraction in imports. A high CAD, which was close to 5% of GDP in 2012-13, was one of the prime reasons which led to nervousness in the currency markets, making rupee the worst performing emerging market unit following the taper tantrums in summer of 2013. This forced the government to take unconventional measures, including restrictions on gold imports to arrest the deficit. According to some analysts, this led to an uptick in smuggling of the precious metal which does not get captured in the official data.

The net services receipts declined to $15.77 billion from $17.75 billion, a year ago, due to a fall in net earnings on account of travel, financial services and other business services, it said. In what hints at a dip in remittances, the private transfer receipts, which mainly represents the money sent by the Indian Diaspora, declined to $15.2 billion from $17.13 billion, a year ago, it said.