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India's Jan-March current acc deficit narrows to 0.2% of GDP

Wednesday, June 10, 2015 - 22:15

[MUMBAI] India's current account deficit narrowed to 0.2 per cent of gross domestic product in the January-March quarter, its lowest in a year, as global oil prices slumped while foreign investments into the country remained robust.

India's balance of payments stood at a surplus of $30.1 billion in the previous year, the highest quarterly balance ever, staying positive for a sixth consecutive quarter.

The current account deficit is a stark turnaround from the record high of 4.8 per cent of GDP registered in the 2012/13 fiscal year, which brought on India's worst currency crisis in more than two decades.

But analysts expressed disappointment that India had failed to notch a current account surplus and said the deficit could widen in coming quarters given the prospect of foreign investor selling tied to potential hikes in US interest rates.

"We were expecting a surplus on the current account in January-March, but the number was disappointing," said Soumya Kanti Ghosh, State Bank of India's chief economic adviser.

Mr Ghosh said a surplus was prevented because of factors including a bigger-than-expected fall in exports and lower income from remittances.

India's deficit reached US$1.3 billion, or 0.2 per cent of gross domestic product in the January-March quarter, according to the Reserve Bank of India data.

That was lower than the deficit of US$8.3 billion, or 1.6 per cent of GDP, in the previous quarter and the lowest since a deficit of US$1.2 billion in the January-March quarter a year ago.

The deficit narrowed as benchmark Brent crude fell nearly 4 per cent during the previous quarter, tumbling at one point to its lowest since April 2009.

Oil prices are a key factor for India, given the country imports nearly 80 per cent of its oil requirements.

That also helped narrow the trade deficit in the January-March period to US$31.7 billion from US$39.2 billion a quarter ago.

Foreign inflows into India's debt and equity markets surged to US$12.9 billion during January-March, up nearly 36 per cent from the same period a year ago, stoked by continued optimism about the prospecot of economic reforms by Prime Minister Narendra Modi's government.

The capital and financial account was also in surplus at US$0.3 billion, according to the data.

Analysts said foreign flows would likely determine the outlook for the country's current account.

"If US Fed lifts rates there will be spillover effect and a danger of capital flight and this picture can suddenly change," said Rupa Rege Nitsure, group chief economist, L&T Financial in Mumbai.

REUTERS

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