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High oil prices, trade deficit widen India’s current account deficit

According to the RBI data, the CAD for last fiscal widened to 1.9 per cent of the GDP (Gross Domestic Product) from 0.6 per cent in 2016-17.

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Reserve Bank of India RBI

Mumbai, June 13 (IANS) A rise in trade deficit due to higher crude oil prices widened India’s current account deficit (CAD) for 2017-18, Reserve Bank of India’s (RBI) data showed on Wednesday.

According to the RBI data, the CAD for last fiscal widened to 1.9 per cent of the GDP (Gross Domestic Product) from 0.6 per cent in 2016-17.

The current account is the net difference between inflows and outflows of foreign currencies.

Accordingly, the country’s trade deficit increased to $160 billion in 2017-18 from $112.4 billion in 2016-17.

“Net invisible receipts were higher in 2017-18 mainly due to increase in net services earnings and private transfer receipts,” the RBI said in a statement on “Developments in India’s Balance of Payments”.

In terms of inflows, gross FDI (Foreign Direct Investment) into India increased to $61 billion in 2017-18 from $60.2 billion in 2016-17.

However, net FDI inflows in 2017-18 fell to $30.3 billion from $35.6 billion in 2016-17.

As per the RBI data, portfolio investment recorded a net inflow of $22.1 billion in 2017-18 as compared with $7.6 billion a year ago.

“In 2017-18, there was an accretion of US$ 43.6 billion to the foreign exchange reserves (on a BoP basis),” RBI said.

On the quarterly basis, the data showed that the country’s CAD rose to $13 billion during the fourth quarter (January-March) of 2017-18 from $2.6 billion in the like quarter of 2016-17.

“The widening of the CAD on a year-on-year (y-o-y) basis was primarily on account of a higher trade deficit ($41.6 billion) brought about by a larger increase in merchandise imports relative to exports,” the statement said.

The Q4 CAD accounted for 1.9 per cent of the GDP as against 0.4 per cent of the GDP in the like quarter of 2016-17.

“Net services receipts increased by 8.8 per cent on a y-o-y basis mainly on the back of a rise in net earnings from software services and other business services,” the statement said.

“Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.1 billion, increasing by 15.1 per cent from their level a year ago.”

In the financial account, net FDI stood at $6.4 billion in Q4 of 2017-18 higher than $5 billion in Q4 of 2016-17.

The data disclosed that net inflow of portfolio investment was just $2.3 billion as against net inflow of $10.8 billion during Q4 2016-17; on account of moderation in net purchases in both the debt and equity markets.

“Net receipts on account of non-resident deposits amounted to US$ 4.6 billion in Q4 of 2017-18 as compared with US$ 2.7 billion a year ago,” the statement said.

In Q4 of 2016-17, foreign exchange reserves (on BoP basis) increased by $13.2 billion as against an accretion of $7.3 billion during the like period of 2016-17.

ICRA’s Principal Economist Aditi Nayar said: “The deterioration in India’s current account deficit to $13.0 billion in Q4 FY2018, is in line with our forecast of around $12-14 billion.”

“The size of the current account deficit in Q4 FY2018 nearly rivalled the full year deficit recorded in FY2017, underscoring the impact that rising commodity prices have on the external balances of net importers such as India.”

Nayar pointed out that despite the contraction in gold imports, the merchandise trade deficit worsened in Q4 FY2018.

“Around half of the magnitude of this deterioration is attributable to the larger oil import bill, following the rise in crude oil prices,” Nayar said.

India Ratings Chief Economist Devendra Kumar Pant said: “Nearly 46 per cent deterioration in trade deficit in FY18 was due to oil. However, higher services exports and remittances in FY18 reduced ballooning of CAD. Despite widening of CAD, strong capital and financial account flows resulted in US$43.6 billion increase in foreign exchange reserves, which provided strength to currency.”

“Going forward current account situation in FY19 is likely to worsen and this coupled with weak capital flows will exert pressure on currency. Deteriorating current account and fiscal slippage does not augur well for macro fundamentals.”

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Global markets under pressure over fear of coronavirus spread

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Stock Market Down

Mumbai, Jan 24 : Fears that the outbreak of coronavirus in China may disrupt economic activity and global growth has sent the stock markets tumbling.

Chinese health authorities on Friday said that 830 cases of pneumonia caused by coronavirus were confirmed in 29 provincial-level regions in the country. The pneumonia has so far claimed 25 lives.

A sharp adverse reaction from Asian, US and European markets was witnessed because China is entering one of its busiest travel periods on account of its Lunar New Year holiday. The virus outbreak could hurt demand.

On Thursday, Chinese stock markets logged its biggest slide in eight months. However, Indian markets closed higher as the oil prices plunged significantly. The global oil benchmark, Brent slipped to $62 a barrel as the virus outbreak in China may dent fuel demand.

Meanwhile official sources told IANS that though over 500 Indian students study in Wuhan city’s medical colleges and universities, most of them had left for home for the Chinese New Year holidays.

Deaths due to the virus have revived memories of the SARS epidemic, caused by a coronavirus, which killed nearly 800 people and infected more than 8,000 others across the world in 2002-2003.

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SC stays NCLAT order on RoC plea for changes in Tata-Mistry verdict

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Cyrus Mistry

New Delhi, Jan 24 : In a major development in the Tata Sons-Cyrus Mistry row, the Supreme Court on Thursday stayed the National Company Law Appellate Tribunal’s (NCLAT) order dismissing the Registrar of Company’s (RoC) plea to modify its verdict on the Tata Sons matter.

Tata Sons had challenged in the apex court the NCLAT’s January 6 order on conversion of Tata Sons from a public to a private company.

Agreeing to hear the Tata Sons’ plea, the apex court on Friday issued a notice to the parties concerned. The three judge bench headed by Chief Justice S.A. Bobde will hear the matter along with the main plea filed by Tata Sons against NCLAT’s verdict.

The National Company Law Appellate Tribunal (NCLAT) had on January 6 rejected the plea by the RoC to modify the appellate tribunal’s judgement in the Tata-Mistry case.

The NCLAT had in its December 18 verdict termed the RoC’s decision to allow conversion of Tata Sons from a public to private company as illegal, while the RoC had filed a plea at the appellate tribunal to remove the word “illegal” from its verdict, among other observations.

The two-judge bench headed by NCLAT Chairman Justice S.J. Mukhopadhaya had observed that the judgment did not cast any aspersions on the RoC.

Posting the matter for hearing after four weeks, the Supreme Court had, on January 10, stayed the NCLAT order reinstating Cyrus Mistry as Tata Sons Chairman. Chief Justice S.A. Bobde said the NCLAT had granted a prayer not made.

However, Mistry has already made a statement that he is no longer interested in taking up the chairmanship of Tata Sons.

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Swamy warns against Air India sale, wants House panel to vet his note

It has been reliably learnt that the Rajya Sabha member had expressed reservations over privatisation of Air India the meeting of a Parliamentary consultative committee earlier this month.

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Subramanian Swamy

New Delhi, Jan 23: The government’s plan to sell national carrier Air India may face political and legal headwinds with senior BJP leader Subramanian Swamy raising the red flag against the decision.

Days before the launch of bidding process by inviting Expressions of Interest (EoI) from potential suitors, Swamy has warned against such move, saying the issue was currently being discussed by a Parliamentary panel.

“Right now, it (Air India disinvestment) is before the consultative committee and I am a member of that. I have been asked to give a note which will be discussed in the next meeting. They can’t go ahead without that,” Swamy told IANS.

“If they do, I will go to court. They know that too,” he cautioned.

A vocal opponent of Air India privatisation, Swamy had earlier suggested to list 49 per cent of Air India shares on stock exchanges while government holds 51 per cent in the carrier as an alternative to selling its entire stake to private companies.

It has been reliably learnt that the Rajya Sabha member had expressed reservations over privatisation of Air India the meeting of a Parliamentary consultative committee earlier this month.

After its failed first attempt, the Modi government has shown great zeal this time to sell Air India. It is set to offer a sweetened deal to potential buyers this time around by removing a large chunk of the debt and liabilities from the airline books.

Aviation Minister Hardeep Singh Puri had earlier said that Air India will be shut down, in case the disinvestment exercise is not successful.

Sources told IANS that the preliminary information memorandum (PIM) inviting EoI has been tentatively scheduled to be unveiled on January 27.

Air India is proposed to be sold along with its subsidiary Air India Express and ground-handling joint venture company Air India Singapore Airport Terminal Services Ltd (AISATS) in which it has 50 per cent stake.

Air India on January 10 came out with tender for engaging aircraft asset management companies for carrying out technical audit of its entire fleet.

A Ministerial panel on Air India chaired by Home Minister Amit Shah on January 7 approved the draft EoI and a share purchase agreement (SPA) for the airline’s disinvestment.

(Nirbhay Kumar can be contacted at [email protected])

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