Current account deficit comes down but remittances and service exports fall amidst declining trade: trade data

India’s current account deficit has registered its smallest deficit figure in the last seven years. Declining trade deficit amidst the global recession has helped to narrow down the trade deficit. According to the RBI’s quraterly estimate about trade data for the quarter, other developments for the quarter include fall in services exports which is a matter of concern in the context of sharp decline in exports of goods.

The current account deficit for the fourth quarter of the last financial year (2015-16) was just $300 million which is around 0.1% of GDP. This is significantly lower than US$ 7.1 billion (1.3 per cent of GDP) in Q3 of 2015-16 and marginally lower than US$ 0.7 billion (0.1 per cent of GDP) in Q4 of 2014-15.

According to the RBI Report, the contraction was driven by declining trade deficit. Trade deficit for the quarter was US$ 24.8 billion than in Q4 of last year (US$ 31.6 billion) and US$ 34.0 billion in the preceding quarter.

At the same time, the data shows an undesirable trend of declining service exports. Net services receipts declined on a year on year basis mainly due to fall in exports of transport, financial services and telecommunication, computer and information services.

Another negative trend is the decline in remittances. It is expected that remittances are adversely affected by new indigenization drive in Gulf countries coming out of the crude price fall. Services and remittance flows are instrumental in offsetting the trade deficit for the country historically. Declining trend in these two will put additional pressure on the balance of payment in near future if the quarterly data is an indicator.