3QFY2014 CAD narrows to 0.9% of GDP led by moderation in trade deficit - Angel Broking

The CAD during 3QFY2014 narrowed sharply to 0.9% of GDP as compared to 1.2% of GDP in the previous quarter and 6.5% of GDP in 3QFY2013. The moderation can be attributed to the trade deficit narrowing drastically to USD33.2bn during the quarter from USD58.4bn a year ago. This is on account of both the rise in export growth as well as compression of imports.

Merchandise exports increased by 7.5% in 3QFY2014 as compared to a moderate 3.9% on the back of significant growth especially in the exports of engineering goods, readymade garments, iron ore, marine products and chemicals. At the same time merchandise imports declined steeply by 14.8% as against an increase of 10.4% in 3QFY2013 led mainly by the curbs on gold imports. Gold imports came in at just about USD3.1bn as compared to USD17.8bn in 3QFY2013. On the invisibles front, net services receipts improved with 8.9% growth in 3QFY2014 and outflow on account of primary income was lower than the previous quarter.

Owing to the efforts made by policymakers to attract NRI deposits in particular as well as on account of receding external sector risks, on a BoP basis, there was a net accretion of USD19.1bn to our foreign exchange reserves in 3QFY2014 as compared to a drawdown of USD10.4bn in the preceding quarter. The net NRI deposit inflows stood at USD21.4bn as compared to USD2.7bn in 3QFY2013 owing to the FCNR(B) deposits mobilization under the RBI's swap scheme offered during September-November 2013.

During 9MFY2014, the CAD has come in at a manageable level of 2.3% of GDP as against 5.2% of GDP in the corresponding period of the previous year. We continue to maintain that for FY2014 as a whole the CAD is likely to range between 2.0-2.5% of GDP as against 4.8% of GDP reported in FY2013.

Source : Equity Bulls

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