India's Current Account Gap Narrows First Time in Three Quarters

(Bloomberg) -- India’s current-account deficit narrowed last quarter after global crude oil prices fell from a recent peak in October.

The shortfall was $16.9 billion in October-December, or 2.5 percent of gross domestic product, the Reserve Bank of India said in a statement in Mumbai on Friday. That compares with a median $16 billion deficit estimated in a Bloomberg survey.

The gap is smaller than the previous quarter’s $19.1 billion, or 2.9 percent of GDP. The deficit compares with the 2.1 percent of GDP in the year-earlier period.

Key Insights

• A more sustainable narrowing of the deficit would need a recovery in exports, which has been subdued amid weak global demand and trade tensions between the U.S. and China. Still, the gap narrowing sequentially is good news for the rupee, which has gained 0.4 percent so far this year after being Asia’s worst performer last year
• A drop in the average price of India’s oil basket, a benchmark derived from various crude oil imported by it, helped narrow the trade gap during the quarter and, in turn, the current-account deficit
• Separately, Prime Minister Narendra Modi’s administration has explored ways --including import curbs -- to bring down India’s trade deficit to spur domestic manufacturing and economic growth

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• The goods trade deficit widened to $49.5 billion in the quarter to December from a gap of $44 billion the previous year
• Net services receipts increased by 2.8 percent year-on-year, the RBI said
• To read the full RBI statement, click here

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