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Current Account Deficit shrinks to 1-yr low at 0.2%

Current Account Deficit shrinks to 1-yr low at 0.2%
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Current Account Deficit (CAD) fell sharply to its lowest level in a year at $1.3 billion or 0.2 per cent of GDP in the fourth quarter of 2014-15, as trade gap narrowed on lower oil prices and robust foreign inflows.

The CAD for the entire fiscal ended March 31, 2015 also narrowed to 1.3 per cent of the country’s Gross Domestic Product, the Reserve Bank said on Wednesday.

“On a quarter-on-quarter basis, CAD narrowed sharply to $1.3 billion (0.2 per cent of GDP) in fourth quarter of financial year 2014-15 from $8.3 billion (1.6 per cent of GDP) in the third quarter,” RBI said.

A key measurement of a country’s trade, the CAD is the amount by which the value of goods and services imported by it exceeds the value of goods and services exported in a period.

“The reduction in CAD in fourth quarter was primarily on account of lower trade deficit as net earnings through services and primary income (profit, dividend and interest) witnessed a decline in quarter-on-quarter terms though secondary income recorded a marginal increase of 0.4 per cent,” the central bank said.

On year-on-year basis, CAD in the fourth quarter was a shade higher than $1.2 billion (0.2 per cent of GDP) in the same quarter of financial year 2013-14.

For the full fiscal 2014-15, the CAD shrank to $27.5 billion, or 1.3 per cent of GDP, from $32.4 billion or 1.7 per cent of GDP a year ago, RBI said.

The central bank also said it added a whopping $61.4 billion to the foreign exchange reserves in 2014-15 compared to $15.5 billion in the previous fiscal.

At the end of March, 2015, the level of foreign exchange reserves stood at $341.6 billion.

However, in year-over-year terms, the trade deficit in the fourth quarter widened marginally as exports registered a larger decline (15.4 per cent) than imports (10.4 per cent).

“In financial year 2014-15, trade deficit narrowed to $144.2 billion from $147.6 billion last year,” the RBI data showed.

Lower CAD, on the back of contraction in trade deficit and marginal improvement in the net invisible earnings, along with a sizable increase in net financial flows enabled a large build-up of reserves, the central bank said.

Domestic rating agency Care Ratings said the CAD could remain range-bound going ahead and pegged it at 1.5-2.0 per cent of GDP for the current fiscal 2015-16.
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