Remittances from overseas Indians has been dropping continuously for the last five quarters, contributing to the widening of current account deficit (CAD). The trade gap has also widened due to lower software exports. Balance of payment data showed that net personal transfers - which are largely remittances by Indians employed overseas - fell to $13.6 billion during the demonetisation quarter from $14.9 billion, a drop of 9.7%.
According to numbers released by the RBI, the current account deficit widened to $ 7.9 billion (or 1.4% of GDP) in Q3FY17 as compared to $ 7.1 billion (1.4% of GDP) in Q3FY16 and $ 3.4 billion in (0.6% of GDP) in Q2FY17. The CAD is the difference between income from exports and imports plus the difference from between outbound and inbound investment income.
A statement issued by the central bank said that the CAD widened despite a slightly lower trade deficit year-on-year, primarily on account of a decline in net invisibles receipts. Invisible includes remittances from software, services and money sent by Indians working oversea. Net services receipts moderated compared to Q3FY16, due to a fall in earnings from software, financial services and charges for intellectual property rights.
During April to December, however, the deficit halved to 0.7%, from 1.4% a year ago. This was primarily because of fall in earnings from software, financial services and charges for intellectual property rights. Earnings from software exports have been declining YoY, but the third quarter has seen a sequential increase in software exports over the second quarter.
The net foreign direct investment of $9.8 billion during the reporting quarter was marginally lower than last year. The RBI said that there was a net outflow of portfolio investment of about $11.3 billion during the period in both equity and debt segments, as against a net inflow of $0.6 billion in the year-ago period. During the current fiscal, net FDI rose 12.3% to $30.6 billion as compared to April-December 2016.
