CAD Widens to 1.9% of GDP in Q4

India’s external position turned weaker with the current account deficit, the excess of spending overseas than earnings, more than quadrupled in the fourth quarter of FY18 due to soaring commodity prices. For the full fiscal year too, it rose sharply.

CAD rose to $ 13 billion, or 1.9% of the gross domestic product, from $ 2.6 billion or 0.4% of the GDP in the year-ago period. For the full year, it climbed to 1.9% of GDP, from 0.6% a year earlier.

External trade which has caused worries to the Indian financial stability in the past due to heavy reliance on oil imports, has returned with crude oil prices soaring. Every $10 a barrel increase in oil price would worsen the current account deficit by 0.4% of the the GDP and push inflation by 30 to 40 basis points, and hurt growth by 15 basis points, estimates Nomura.

If Brent oil averages $75 a barrel sustainably in 2018, India’s current account deficit would widen to 2.5% of the GDP from 1.5% in 2017. Crude oil accounts for a fourth of India’s merchandise imports and crude prices increased 5% during the quarter to touch $68.4 per barrel by the end of March.

Services receipts increased 8.8% on the back of a rise in software services and other business services. Remittances amounted to $ 18.1 billion, up 15.1% from their level a year ago. In the capital account, foreign portfolio investment recorded net inflow of $ 2.3 billion in the quarter compared with an inflow of $10.8 billion in Q4 last year – on account of moderation in net purchases in both the debt and equity markets, RBI said.

While inflows through NRI deposits amounted to $4.6 billion in Q4 of 2017-18 as compared with $ 2.7 billion a year ago. Capital account surplus amounted to $25 billion during the quarter compared to $10.4 billion in the same period last year.

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