CAD narrows to $300 million in Q1 on huge import contraction

The CAD, a key factor monitored while assessing a country's external position, had stood at a high of $6.1 billion, or 1.2 <g data-gr-id="24">per cent</g> of GDP, in the year-ago period.

<g data-gr-id="25">Trade</g> deficit for the reporting period came down to $23.8 billion from $34.2 billion in the year-ago period, as per the preliminary data on the balance of payments published by the central bank.

This was on the back of a sharp 11.5 percentage points contraction in imports as against a 2.1 per cent dip in merchandise exports, the data showed. A host of brokerages and analysts were estimating the country may post its first current account surplus in almost a decade on the back of <g data-gr-id="27">contraction</g> in imports.

A high CAD, which was close to 5 per cent of GDP in 2012-13, was one of the prime reasons which led to nervousness in the currency markets, making rupee the worst performing emerging market unit following the taper tantrums in summer of 2013.

 This forced the government to take unconventional measures, including restrictions on gold imports to arrest the deficit, and according to some <g data-gr-id="28">analysts</g> this led to an uptick in smuggling of the precious metal which does not get captured in the official data.

The net services receipts declined to $15.77 billion from $17.75 billion a year ago due to a fall in net earnings on account of travel, financial services and other business services, it said.

In what hints at a dip in remittances, the private transfer receipts, which mainly represents the money sent by the Indian Diaspora, declined to $15.2 billion from $17.13 billion a year ago, it said.

The net foreign direct investment dipped massively to $4.1 billion in the reporting period from $10 billion a year ago and $8.8 billion in the preceding quarter (January -March 2016), the central bank said.

But the portfolio investment recorded a net inflow of $2.1 billion as against a marginal $50 million net outflow in the year-ago period and $1.5 billion <g data-gr-id="30">outflow</g> in the preceding March quarter.

There was a moderation in the accretion of deposits from the non-residents as well at $1.4 billion, it said.

A jump in repayments under external commercial borrowings led to a net outflow of $3.22 billion under loans to India in the quarter as against net borrowings of $5.65 billion in the year-ago period, it said.