India’s trade deficit shrinks in Q2, foreign exchange reserves rise

India’s trade deficit shrank during the second quarter of this year, defying market expectations for the first surplus in nine years, as citizens abroad sent fewer remittances home.

India posted a current account deficit of USD300 million, or 0.1 percent of gross domestic product, in the period, compared with expectations for a USD4 billion surplus that would have been the first positive balance since the first three months of 2007, data released by the Reserve Bank of India (RBI) showed Wednesday.

India’s trade deficit narrowed nearly 38 percent in August to USD7.674 billion from USD12.4 billion in the same month last year. The deficit stood at USD7.761 billion in the previous month. The lower trade deficit was due to the 14 percent fall in imports last month to USD29.2 billion compared to the same month last year, data released by the Ministry of Commerce showed Wednesday. Exports contracted marginally by 0.3 percent to USD21.5 billion on a year-on-year basis.

Further, during the month, oil imports fell 8.5 percent to USD6.8 billion while non-oil imports fell 15.6 percent to USD22.4 billion. Vegetable oil imports stood at USD942.4 million, down 5.4 percent. Also, gold imports fell 77.5 percent from a year ago to USD1.12 billion.

In addition, portfolio investments, recorded a net inflow of USD2.1 billion in Q1 of 2016-17 against a marginal outflow during the first quarter of fiscal year 2016. The outflow was of USD1.5 billion in the preceding quarter. Balance of Payments (BoP) remained in the positive territory with addition to foreign exchange reserves in Q1 of fiscal 2017, albeit in lesser value compared to first quarter of FY16.

Meanwhile, foreign exchange reserves (on a BoP basis) rose by USD7 billion in Q1 of 2016-17 against an accretion of USD11.4 billion in Q1 of 2015-16. The addition to forex reserves was USD3.3 billion in Q4 of 2015-16, according to RBI data.