Current account deficit narrowed in the October-December quarter of 2015 and is likely to shrink further in the March quarter of this year, an HSBC report says.
According to the global financial services firm, weak exports — both goods and services — lower remittances and higher income outflows took the sheen off the improvement in CAD figure for the December quarter.
India’s current account deficit (CAD) narrowed to 1.3 per cent of GDP in October-December against 1.5 per cent in the same period last year, mainly on account of a lower trade deficit.
“On the bright side, the monthly run rate for the trade deficit is tracking well under $10 billion in 2016, which should shrink CAD further in the March quarter,” HSBC said in a research note.
On the balance of payments situation, HSBC said it is comfortably in surplus.
“Despite the limited decline in CAD and the continuation of portfolio outflows, the balance of payments was comfortably in surplus, thanks to the sharp uptick in FDI inflows, which alone was able to finance CAD,” HSBC added.
On a cumulative basis, CAD narrowed to 1.4 per cent of GDP in April-December from 1.7 per cent in the same period of 2014-15.
“The important point to highlight is CAD continues to narrow and remains well financed by net FDI inflows. This trend is likely to endure going forward, with the CAD staying at the 1 per cent of GDP ballpark, financed almost fully by the robust pipeline for FDI inflows,” HSBC said.