India Balance of Payments

India's Current account deficit (CAD) more than doubled during July-September 2017 from the year ago level.

Published quarterly by Reserve Bank of India. Updated until the July-September 2017 quarter. (Published on December 13th, 2017)

Recent Data Trend

India's Current Account Deficit (CAD) worsened to USD 7.2 billion (1.2% of GDP) during July-September 2017(Q2 2017-18) from a level of USD 3.4 billion (0.6% of GDP) in the corresponding quarter a year ago. The worsening in CAD was brought about by a higher goods trade deficit in Q2 of 2017-18 (USD 32.8 billion) on account of the high level of merchandise imports during the period. (USD 107 billion, a growth of 18.2% YoY). The surge in crude oil prices increased the import bill for India. In the concerned period, the global crude oil price of Indian basket rose by 15.6% YoY.

However, private transfer receipts (representing mainly the remittances by Indians employed abroad) helped narrow the CAD. During Q2 2017-18, private transfer receipts surged by 14.7% YoY amounting to USD 17.4 billion.

Despite the widening of CAD on a year on year basis, the Q2 2017-18 witnessed an accretion of USD 9.5 billion to the foreign exchange reserves (on a BoP basis) from a USD 8.5 billion BoP surplus in the year-ago period. The surplus in the overall BoP was brought about by a higher financial account surplus.

The financial account (incl. direct investment, portfolio investment, other investments such as external loans etc.) surplus rose to USD 6.9 billion during Q2 2017-18, marking a growth of 60.5% YoY. The increase in surplus was led by a sharp reduction in loan repayment amount(reduction in foreign liability) and an increase in the trade credit. The loan repayment amount contracted to USD 2 billion in Q2 2017-18 from USD 10.62 billion in Q2 2016-17. Further, the trade credit inflow increased to USD 4 billion in contrast to the outflow of 0.18 billion in the year-ago period. The net FDI inflow and portfolio inflows stood at USD 12.4 billion and USD 2.1 billion, respectively.

On a cumulative basis, during April-September 2017 (H1 2017-18), the CAD increased to 1.8% of GDP in H1 2017-18 from 0.4% in H1 of 2016-17, led by the higher trade deficit. India’s trade deficit increased to USD 74.8 billion in H1 2017-18 from USD 49.4 billion in H1 2016-17.

However, the financial account balance improved significantly to a surplus of USD 212.3 billion in H1 2017-18 from a mere USD 4.1 billion in the year-ago period. The surge in financial account surplus was led by portfolio inflows and a sharp improvement in the net position on loans made to India. The portfolio inflows rose to USD 14.5 billion in H1 2017-18 from USD 8.2 billion in the year-ago period. The loan made to India increased to USD 4.2 billion(on a net basis), resulting in an increase in foreign currency inflow in contrast to the net outflow of USD 10.5 billion on account of high loan repayment in H1 2016-17.

With the hardening of oil prices expected in the near future, the oil import bill of India is likely to witness a surge in the October-December quarter. Further, the exports kicked off the third quarter with a poor show, falling by 1.12% YoY, marking the first contraction since July 2016. Both, the expected surge in the import bill due to increase in the crude oil prices and weak export performance, is likely to put pressure on the CAD in the coming quarter.

Brief Overview

The Balance of Payments (BoP) records all economic transactions between residents of a country and 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 labor, 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: 2nd week of March 2018.