BoP data suggest low external vulnerabilities

While there was a slight widening in India’s current account deficit in Q4, the more important point is that the external shortfall remains small. Given also that FDI inflows remain strong, the economy looks well placed to cope in the event of another upsurge in global risk aversion over the coming months. India’s current account deficit widened from US$3.3bn (0.6% of GDP) in Q3 (Q2 of FY16/17) to US$7.9bn (1.4% of GDP) in Q4. However, the data can be quite seasonal, so it makes sense to look at the current account over a longer time horizon. The data look more positive in this regard. Over a four-quarter sum, the current account deficit came in at 0.5% of GDP in Q4, the same shortfall as in Q3. This is comfortably within the Reserve Bank’s 2% of GDP threshold, below which it considers a deficit to be sustainable.