Current Account Deficit Widens On Outflows Of Portfolio Money, NRI Deposits
Non-resident Indian (NRI) deposits declined by $18.5 billion in Q3 FY17, shows RBI data.
India’s current account deficit widened in the third quarter of the current financial year due to outflows from the portfolio account and redemption of foreign currency non-resident (FCNR) deposits.
The deficit widened to $7.9 billion in the October-December 2016 period compared to $7.1 billion in the comparable period last year, showed data released by the Reserve Bank of India (RBI) on Thursday. As a percentage of GDP, the current account deficit held steady at 1.4 percent. In the July-September quarter, the deficit stood at $3.4 billion.
The quarter saw outflows from the debt and equity markets, which had accelerated due to uncertainty following the announcement of demonetisation on November 8.
There has been net outflow of portfolio investment to the tune of $11.3 billion as against net inflow of $0.6 billion in Q3 of last year; portfolio outflows occurred in both equity and debt segments.Reserve Bank of India
The quarter also saw the redemption of FCNR deposits raised in 2013 as a way to support the Indian rupee. Most of these deposits were of a three-year duration and were due in the October-December period.
Non-resident Indian (NRI) deposits declined by $18.5 billion in the third quarter of financial year 2016-17 as against an inflow of $1.6 billion a year ago, the RBI data showed.
The outflows, however, had a minimal impact on foreign exchange reserves. On a balance of payments (BoP) basis, reserves declined by $1.2 billion as against an increase of $4.1 billion in the third quarter of last year.
The upward revision of services exports helped contain the current account deficit, said Soumya Kanti Ghosh, chief economist at State Bank of India in a research note.
“The increase in services export is mainly due to increase in travel components, which has shown a growth of 11 percent. This could be possibly due to large-scale purchase of dollars by exchanging old currency in the demonetization period,” Ghosh wrote.