Current Account Deficit Narrows To 1.3 % of GDP In 3rd Quarter

India’s current account deficit narrowed to 1.3% of the gross domestic product (GDP) in the fiscal third quarter. In the earlier year 1.5% traded as deficit contracted. The Reserve Bank of India (RBI) showed in date that trade deficit during the October-December quarter narrowed to $34 billion from $38.6 billion during the same period in 2014-15.

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. 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.

On 31st December the Current Account Deficit narrowed to 1.4% of GDP in the nine months from 1.7% in the corresponding period of 2014-15. Since December 2014 India’s merchandise exports have been declining continuously because of sluggish global demand and low commodity prices, particularly oil. 

Devendra Pant, chief economist at India Ratings Ltd said the slower growth of net services exports and a decline in remittances over the second quarter of 2015-16 and the third quarter of 2014-15 are cause for concern but Non-resident Indian (NRI) deposits improved significantly in the third quarter of 2015-16 to $5.9 billion over the preceding quarter’s $4.2 billion.

RBI also said that there has been a marginal net outflow of $0.2 billion in portfolio investment in third quarter of 2015-16 as against net outflow of $3.5 billion in the preceding quarter and “equity outflows in Q3 were almost offset by inflows into the debt segment”. 

Extra Info :

  • Current Affairs Deficit  : mirrors the difference between domestic savings and domestic investment, and conveys the extent of this gap that needs to be bridged by foreign savings.
  • A portfolio investment : is an investment made by an investor who is not involved in the management of a company. This is in contrast to direct investment, which allows an investor to exercise a certain degree of managerial control over a company.

So now lets discuss some questions related to this article which can be asked in the upcoming exams :
1. CAD has been narrowed to how much percentage in 3rd Quarter fiscal ?
2. Expand the term CAD & NRI ?

Courtesy : The Hindu 

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