Current account deficit narrowed in Q1: RBI

Balance of payments stays in positive territory

The country's current account deficit (CAD) narrowed to $6.2 billion (1.2 per cent of gross domestic product) in the quarter (Q1) ended June, from $7.8 bn (1.6 per cent of GDP) in the quarter ended June 2014.

It was $1.3 bn (0.2 per cent of GDP) in the quarter ended March.The addition to reserves was $11.4 bn in the June quarter against $11.2 bn in the year-ago period, the Reserve Bank said.

It said the CAD improvement for Q1 was due to contraction in the merchandise trade deficit ($34.2 bn), higher net earnings from services and lower outflow of dividend and interest payments. The merchandise trade deficit contracted on a year-on-year basis due to a larger absolute decline in imports relative to exports in the segment.

Madan Sabanavis, chief economist, CARE Ratings, said the CAD number was on expected lines. It might widen later and for this financial year, was expected to be 1.8-2 per cent of GDP.

In the financial account, net inflow of foreign direct investment was higher over a year before. Portfolio investment declined sharply, almost entirely in the debt segment, RBI said.

Non-resident Indian deposits received by commercial banks at $5.9 bn were more than double the net inflow into these accounts in Q1 of last year.

Sabnavis said accretion to reserves might stay positive in the second quarter but the amount could be low, as foreign portfolio investors pulled out part of their investments in August and early September.