Current account deficit widens to 2.4% of GDP as oil offsets gains in remittances

Current account deficit widens to 2.4% of GDP as oil offsets gains in remittances

News:

1. India’s Current Account Deficit (CAD) widens to 2.4 per cent of GDP.

Important Facts:

2.India’s CAD widens to 2.4 per cent of GDP in the April-June quarter of 2018-19 against 1.9 % in Jan-March quarter of 2017-18 due to rise in oil prices.

3. Some important Data

• Merchandise trade deficit expanded to USD 45.7 Billion in June quarter compared to USD 41.6 Billion in January quarter.
• Net service export at USD 18.7 Billion compared to USD 20 Billion due to lower performance of IT services.
• Remittance picked up to $10.7 Billion in March quarter.
• Increase in FDI from $6.4 Billion to $9.7 Billion.
• However, Portfolio Investment shows negative growth with net outflow of $8.1 Billion in June against inflow of $2.3 Billion in preceding quarter.

4. Indian currency declining due to global factor and high trade deficit on account of high oil price.

5. Elevated oil price has contributed 50 % of the trade deficit in June.

6. Government has required plan to deal with the imbalances. So CAD to this level is not a matter of concern.

7. Foreign Exchange depletion and weak capital inflow has caused Rupees depreciation.

8. CAD in 2019 FY is expected to be 2.6 % and Rupees to average Rs.68.40 to the Dollar.

9. Higher price of oil may reduce the import of Gold however and unless the commodity price retreat, the CAD may be widened to 2.8 %.

10. Depreciation of Rupees to touch Rs.72-73 is expected in the near future.

11. Dip in Inflation below the target of 4.0 %, continue weakening of rupees and GDP growth expected in 2019 may complicate next monetary policy.