India's Current Account Gap Widens Less Than Estimated

India’s current account deficit widened less than estimated, as a smaller goods trade gap offset a drop in service exports, burnishing the rupee’s strength after an increase in U.S. interest rates.

Key Points

  • The shortfall was $7.9 billion October-December, or 1.4 percent of gross domestic product, the Reserve Bank of India said in a statement in Mumbai on Thursday
  • That compares with a median $12 billion deficit predicted in a Bloomberg survey of 13 economists
  • The gap is bigger than the previous quarter’s $3.4 billion (0.6 percent of GDP) and $7.1 billion the previous year (1.4 percent of GDP)

Big Picture

The surprisingly strong data could support the rupee, which touched a 16-month high after Prime Minister Narendra Modi’s big win in a crucial state election this month bolstered expectations of more reforms in Asia’s third-largest economy.

However ICRA Ltd. predicts a current account deficit of about $20 billion in the year through March and $30 billion over the next 12 months as oil prices climb, halting a shrinking trend since 2014. Services exports and remittances -- a key revenue earner for India -- may also be hit if U.S. President Donald Trump cracks down on immigration and business outsourcing and continued tightening by the Federal Reserve can limit inflows into emerging markets.


Details

  • Net services receipts fell to about $18 billion from roughly $50 billion the previous quarter -- and little changed from the previous year -- mainly due to lower earnings from software, financial services and charges for intellectual property rights
  • Remittances declined 3.8 percent from the previous year to $15.2 billion; foreign direct investment also fell
  • Foreign investors also sold more Indian stocks and bonds than they bought after Modi announced his shock cash clampdown
  • However, the goods trade deficit narrowed to $33 billion from $83 billion the previous quarter and little changed from $34 billion the previous year

— With assistance by Manish Modi

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