Balance of Payments

Weak imports narrow India's current account deficit to an 8-quarter low.

Published quarterly by Reserve Bank of India. Updated till the January-March 2019 (Published on June 28th, 2018).

Recent Data Trend

India's current account deficit (CAD) narrowed to an 8-quarter low of USD 4.6 billion (0.7% of GDP) in Jan-Mar 2019 compared to USD 13.1 billion (1.8% of GDP) in the year-ago quarter. The contraction in CAD was primarily on account of the lower trade deficit in the same period. A slowdown in imports due to slump in domestic consumption along with lower crude-oil prices aided merchandise trade deficit to narrow down to USD 35.2 billion in Jan-Mar 2019 from a deficit of USD 41.6 billion in the same period last year.

Higher portfolio inflows of USD 9.4 billion on account of net purchases in both debt and equity market led the capital account to witness a robust surplus of USD 19.2 billion during Jan-Mar 2019. A rise in expectations of Prime Minister Narendra Modi winning a second term at the general elections helped in higher dollar inflows during this period. The strong inflows into the Indian debt and equity markets allowed net accretion of USD 14.2 billion to the country's foreign exchange reserves.

On a cumulative basis, for the fiscal year 2018-19 the CAD increased to a six-year high of 2.1% of GDP (USD 57.2 billion). During the first three quarters, we witnessed higher CAD on account of higher crude oil prices. In the previous fiscal year, the CAD stood at 1.8% of GDP (USD 48.7 billion).

Going forward, the trade deficit at elevated levels in April and May 2019 at USD 15.33 billion and USD 15.36 billion, respectively, can bring a deterioration in CAD in the first quarter of FY2020. With India's increased attractiveness under a strong and stable government along with major central banks turning dovish, we can expect India's capital account to be healthy. Although, with escalated global trade frictions, uncertainty over crude oil prices coupled with stumbling domestic economy, portfolio investors may continue to maintain some caution.

Brief Overview

The Balance of Payments (BoP) records all economic transactions between residents of a country and the rest of the world. The BoP account consists of Current account, Capital account, and Financial Account. 

The current account includes flows of goods, services, primary income, and secondary income between residents and non-residents and thus constitutes an important segment of BoP. The primary income account reflects the amounts payable and receivable in return for providing temporary use of labour, financial resources, or non-produced non-financial assets (natural resources). The secondary income account shows redistribution of income between resident and non-residents, i.e when resources for current purposes are provided without economic value being exchanged in return (transfers).

On the other hand, the capital account comprises credit and debit transactions under non-produced non-financial assets and capital transfers between residents and non-residents. Thus, acquisitions and disposals of non-produced non-financial assets, such as land sold to embassies and sales of leases and licenses, as well as transfers which are capital in nature, are recorded under this account.

The financial account reflects net acquisition and disposal of financial assets and liabilities during a period. Further, it shows how the net lending to or borrowing from the rest of the world has occurred. Conversely, it shows how the current account surplus is used or the current account deficit is financed.

The Reserve Bank of India (RBI) has been compiling and publishing Balance of Payments (BoP) data for India since 1948. Since then, several developments have taken place both globally and domestically.

Considering these developments and to bring out a comprehensive Balance of Payments Manual documenting current practices, procedures of compilation, presentation, coverage and sources of data for India’s balance of payments and assess them in relation to international best practices, India has shifted from BPM 5,1993 manual to BPM6,2009 method of accounting and classifying the data.

The above data has been compiled as per the latest IMF's BPM6 standard of classification. For further details visit the official website.

Next Release Date: To be decided.

Balance of Payments- Annual