Current account deficit increased marginally in the quarter through December despite the trade gap getting narrowed, as both services exports and remittances by global Indians slowed down. As capital flows too took a hit, balance of payments ended in a moderate deficit of $1.2 billion in the quarter.
Current account deficit, the excess of imports of goods and services over exports in the external sector balance sheet, expanded to $7.9 billion during October-December, the quarter in which the decision to ban Rs.500 and Rs.1,000 notes was made, from $7.1 billion a year earlier. But as a percentage of gross domestic product, the ratio was unchanged at 1.4% for both periods. Trade deficit contracted to $33.3 billion in the third quarter of fiscal 2017 from $34 billion a year earlier.But crude oil imports, which account for more than 20% of India's total import bill, rose about $1.7 billion year-on-year as global oil prices started firming up. A structural shift in the current account number in the balance of payments was evident as traditional contributors to current account surplus : software exports and remittances by overseas Indians, continued to slip for the second consecutive quarter.
Remittances by the Indian diaspora amounted to $15.2 billion, having declined by 3.8% from a year ago. Software services exports fell 3% to $17.7 billion.
Net foreign direct investment at $9.8 billion in the third quarter of fiscal 2017 was marginally lower than its level a year earlier. There has been a $11.3 billion net outflow in portfolio investment as against a net inflow of $0.6 billion in Q3 of the previous year -portfolio outflows occurred in both equity and debt. Even deposits by non-resident Indians declined in the past quarter by $18.5 billion, as against an inflow of $1.6 billion a year earlier.
The capital account ended in a lower surplus of $6.1 billion compared to $10.5 billion in the same period of fiscal 2016. The overall balance of payments ended in a modest deficit of $1.2 billion, compared with a $4 billion surplus a year earlier.