New Delhi: India’s current account deficit narrowed to 1.3% of the gross domestic product (GDP) in the fiscal third quarter, from 1.5% in the year earlier as trade deficit contracted, live mint reports . Data released by the Reserve Bank of India (RBI) showed trade deficit during the October-December quarter narrowed to $34 billion from $38.6 billion during the same period in 2014-15.
CAD mirrors the difference between domestic savings and domestic investment, and conveys the extent of this gap that needs to be bridged by foreign savings. CAD narrowed to 1.4% of GDP in the nine months ended 31 December, from 1.7% in the corresponding period of 2014-15.
India’s merchandise exports have been declining continuously since December 2014 because of sluggish global demand and low commodity prices, particularly oil. The Economic Survey released before the 29 February budget said India’s external sector outcome continues to be strong and sustainable because of strong macroeconomic fundamentals and low commodity prices.
“As such, while export slowdown may continue for a while before picking up in the next fiscal, continuance of low global commodity prices augurs well for sustaining low trade and current account deficits,” the survey added.
The survey said that while global concerns over China’s economic growth and normalization of the monetary policy in the US may affect global financial flows, with policy reform initiatives and a strong macroeconomic outcome, the deficit in the current account is likely to be more than fully financed through stable flows and the volatility in global financial markets may affect the exchange rate less than in other emerging economies.