India’s current account balance to fall within 1%-1.2% of GDP in 2016

India’s current account deficit in the fourth quarter narrowed below expectations to USD 7.1 billion from USD 8.7 billion in Q3 2015. Solid inflows of foreign investment overshadowed the weakness in portfolio funds, bringing the balance of payments to a surplus, noted DBS Bank. However, the details give a mixed bag. Import bill narrowed with the help of low commodity prices, while solid inflows of foreign investment alone financed the current account gap, according to DBS Bank.

Meanwhile, the sharp rebound in commodity prices was a “double-edged sword”, said DBS Bank. In the fourth quarter, trade deficit narrowed to USD 34 billion from third quarter’s USD 38.6 billion; however, private transfer receipts and net service receipts moderated in Q4. The invisibles’ strength diminished as weak global demand weighed on the service export receipts, added DBS Bank. Primary income outflows also restarted.

Overseas remittances have been quite stable, according to DBS Bank. In the fourth quarter workers’ remittances dropped 22% q/q. Volatile rupee, together with challenging economic conditions in Gulf nations producing oil is likely to further decelerate inward remittances, noted DBS Bank.

“This year’s current account balance is likely to fall within 1.0-1.2% of GDP, marking a third consecutive year of a comfortable sub-2% gap for the economy”, added DBS Bank.