India's current account deficit narrowed to $8.2bn last quarter, from $10.1bn in Q3. This means that the shortfall decreased to 1.6% of GDP in Q4, from 2.1% of GDP in Q3.
Breakdown reveals that the smaller deficit was caused by a fall in the investment income shortfall, which fell from 1.4% of GDP to 1.1% of GDP. The trade deficit remained stable at 7.6% of GDP, as a renewed pick-up in gold imports offset the impact of falling oil prices.
Capital Economics notes in a report on Tuesday:
- Looking ahead, we think that the risk of the current account deficit ballooning again is low. Despite the fact that restrictions on gold imports have now been almost fully removed, we doubt that imports will surge to the levels seen in 2013.
- India's current account position should remain far less a source of vulnerability than in recent years. Healthier fundamentals have important implications for policy.
- A more stable currency and less need to attract financing from abroad mean that policymakers will be under less pressure to keep interest rates high.
