India’s current account deficit (CAD) for the third quarter narrowed to 2.5% of the GDP compared with 2.9% in the preceding quarter, latest data released by the Reserve Bank of India (RBI) showed. In absolute terms, CAD was $16.9 billion in Q3 compared with $19.1 billion in the second quarter.

However, on a year-on-year basis, CAD in October-December period widened from 2.1% or $13.7 billion.

“The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit at $49.5 billioncompared with $44 billion a year ago,” the RBI said. Net services receipts increased by 2.8%, year-on-year mainly on the back of a rise in net earnings from telecommunications, computer and information services and financial services.

Trade deficit

“Essentially, it was the trade deficit which is why the current account deficit number was increasing. If you look at the other components like software and remittances they have been very much on target,” said Madan Sabnavis, chief economist, Care Ratings.

Net foreign direct investment at $7.5 billion in Q3 of 2018-19, increased from $4.3 billion in Q3 of 2017-18, the data showed.

In Q3 of 2018-19, there was a balance-of-payment deficit of $4.3 billion.

“I think the overall balance of payment, which had a negative outflow of dollars, is going to change because of the higher FPI flow in March. That is going to reverse in the fourth quarter. CAD is likely to remain at 2.5% for the entire year,” Mr. Sabnavis added.

In the third quarter of current financial year, portfolio investments recorded net outflow of $2.1 billion — compared with an inflow of $5.3 billion in Q3 last year – on account of net sales in the equity market.

For the April-December period of FY19, the CAD rose to 2.6% of GDP from 1.8% in April-December 2017 on the back of widening trade deficit, the RBI said.