India's Q2 current account deficit narrows to $6.3 bn

Lower trade deficit, along with higher remittances, aided in narrowing India's current account deficit to $6.3 billion in Q2 of 2019-20.

The Reserve Bank of India's (RBI) data on India's Balance of Payments (BoP) showed that CAD narrowed from $19 billion (2.9 per cent of GDP) in Q2 of 2018-19. It stood at $14.2 billion (2 per cent of GDP) in the preceding quarter.

"The contraction in the CAD was primarily on account of a lower trade deficit at $38.1 billion as compared with $50 billion a year ago," the RBI said in its statement on developments in India's Q2 BoP.

"Net services receipts increased by 0.9 per cent on a y-o-y basis, on the back of a rise in net earnings from computer, travel and financial services," the statement said.

Similarly, remittances grew by 5.2 per cent to $21.9 billion from their level during a year ago period.

As per the data, there was an accretion of $5.1 billion to the foreign exchange reserves as against a depletion of $1.9 billion in Q2 of 2018-19.

"In the financial account, net foreign direct investment was $7.4 billion, almost same level as in Q2 of 2018-19," the statement said.

"Foreign portfolio investment recorded net inflow of $2.5 billion - as against an outflow of $1.6 billion in Q2 of 2018-19 - on account of net purchases in the debt market."

In addition, net inflow on account of external commercial borrowings to India was $3.2 billion as compared with $2 billion in Q2 of 2018-19.

According to ICRA Principal Economist Aditi Nayar: "The current account deficit for Q2 FY2020 printed even lower than our expectations of around $9 billion, led by a narrower trade deficit and higher secondary income flows."

"Based on the available trends for merchandise trade for October-November 2019, we expect the current account deficit to shrink further to $4-6 billion in Q3 FY2020 (and print at 0.7 per cent of GDP) from $16.9 billion in Q3 FY2019, on the back of the YoY correction in crude oil prices as well as subdued domestic demand."IANS