India's current account deficit, the excess of imports over exports, fell further to 1.3% of the gross domestic product due to benefits of lower commodity prices, but the fall in remittances from overseas Indians restricted the improvement in balance of payments (BoP).
Reserve Bank of India data showed current account deficit (CAD) at $7.1 billion in the quarter to December, lower than $8.7 billion, or 1.7% of GDP in the preceding quarter. CAD was $7.7 billion, or 1.5% of GDP, in the year ago period.
The fall in commodity prices helped lowering of trade deficit to $34 billion from $37.4 billion in the previous quarter, narrowing the current account gap. Net foreign direct investment, which picked up to $10.8 billion in the third quarter after moderating in the previous quarter, buoyed the country's BoP position.
Outflow in portfolio investment could also be arrested with improvement in India's macro economic sentiment. Net outflow for the third quarter was just about $0.2 billion compared with net outflow of $3.5 billion in the preceding quarter. Equity outflows in the period under review were almost offset by inflows into the debt segment as RBI liberalised overseas invesment in debts.
Remittances by Indians employed overseas fell to $15.8 billion, amid fears that Indians may lose employment opportunities in the Gulf as they tighten the purse strings due to collapse of oil prices. Non-resident Indian (NRI) deposits moderated too, with the US Federal Reserve raising short term rates, narrowing the interest rate differential between India and the US.
India's foreign exchange reserves, if changes in currency valuation are excluded, rose by $14.6 billion during April-December 2015 against a $31.3 billion rise in the year-ago period. However, foreign exchange reserves, including valuation effects, grew only $8.7 billion compared with $16.4 billion.