Current Account Deficit (CAD) in 1QFY15 widened significantly to USD 7.9 billion (1.7% of GDP), as against USD 1.3 billion in 4QFY14 (0.3% of GDP). This was led by an increase in the trade deficit to USD 34.6 billion from USD 30.7 billion in 4QFY14.
However, CAD was much better than the USD 50.5 billion in 1QFY14 primarily due to restriction on gold imports. Importantly, non-oil imports were higher in 1QFY15 from 4QFY14, probably signaling a rising economic growth momentum.
Invisibles receipts eased in 1QFY15 with net software receipts at USD 17.0 billion and transfers at USD 16.4 billion. Net interest outgo from India continued to be a large drag on invisibles in 1QFY15 and was at (-) USD 6.8 billion.
1QFY15 capital inflows have been much robust at USD 19.9 billion compared to USD 9.2 billion in 4QFY14. Net FDI inflows accelerated to USD 8.2 billion (mainly towards the telecom sector), net FPI was also stronger at USD 12.4 billion (election impact) against USD 9.3 billion in 4QFY14. ECB flows slowed to USD 1.7 billion while banking capital was also weaker on account of higher repayments of overseas borrowings. Overall, with capital flows remaining comfortable, BoP registered a surplus of USD 11.2 billion in 1QFY15.
Kotak Economic Research said, "We see CAD/GDP for FY2015 at 1.7% with crude price at USD 107.5/bbl, with the benefit to CAD/GDP obvious if crude price is lower."
"The government has allowed star trading houses to import gold under the 80:20 scheme and thus we expect gold imports for the year being higher at USD 33 billion from USD 27 billion last year. However, this is unlikely to be enough to push the CAD/GDP to a risk zone with exports remaining strong on expectations of stabilizing global growth," it added.