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Ecoscope - The Economy Observer : CAD narrows to 0.7

16-Jun-2017

India's current account deficit (CAD) widened from USD0.3b (or 0.1% of GDP) in 4QFY16 to USD3.4b (or 0.6% of GDP) in 4QFY17, but slimmed from USD22.1b (or 1.1% of GDP) in FY16 to USD15.2b (or 0.7% of GDP) in FY17. Excluding gold, current account had a surplus of USD5b (or 0.9% of GDP) in 4QFY17 and USD12.3b (or 0.5% of GDP) for FY17.
Financial inflows increased to USD10.4b in 4QFY17, primarily due to USD10.8b foreign portfolio investments (FPI), which more than offset the lower foreign direct investments (FDI; fell from USD8.8b in 4QFY16 to USD5b in 4QFY17).
Due to lower CAD and higher capital inflows, India's forex reserves increased by USD7.3b in 4QFY17, as against a reduction of USD1.2b in the previous quarter and an accumulation of USD3.2b in 4QFY16.
More worryingly, total domestic savings (implied from the difference between investments and CAD) eased further to 28% of GDP in 4QFY17 – the lowest since 2003.
Going forward, we expect CAD to widen to 1.1% of GDP in FY18. As explained earlier, since net exports of goods & services have added to real GDP growth in the past four years, wider deficit in FY18 will drag real GDP growth this year.

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