Merchandise trade deficit rose, services trade surplus and remittances fell in the first quarter

While India’s current-account deficit (CAD) narrowed on-year, it rose sequentially in the first quarter of this fiscal, thanks to a rise in merchandise-trade deficit and lower surplus in services trade. Secondary income surplus, largely reflecting remittances, declined as well.

Financial flows also went up significantly and were more than sufficient to fund CAD, leading to an accretion in foreign exchange reserves. The uptick in financial flows was largely a result of surge in foreign portfolio investments (FPI), and other investments (largely banking capital), even as foreign direct investment (FDI) softened a bit.