Current Account Deficit narrowed to 1.6 % of GDP

The current account deficit (CAD) narrowed to 1.6% of GDP at USD 8.2 billion in the second quarter ended September.

• The contraction in CAD was primarily on account of lower trade deficit (USD 37.4 billion) as compared with USD 39.7 billion in Q2 of last year though it was higher than the level in the preceding quarter (USD 34.2 billion).

According to experts, a CAD up to 2.5% of GDP can be financed with the current level of foreign fund inflows and remittances. In FY14, it had risen to a historic high of4.8% of GDP.

• The foreign direct investment also slowed down during the July-September period to USD 15.1 billion from USD 16.7 billion in the preceding quarter.
• On portfolio investments, there was a net outflow of USD 6.5 billion as against anet inflow of USD 9.8 billion in the year-ago period.

Foreign exchange reserves on a balance of payment basis also came down by USD 0.9 billion in Q2 of the current fiscal.