The June quarter CAD figure is lower than USD 7.8 billion, or 1.6 percent of GDP, in the year-ago period, but higher than 0.2 percent for the March quarter.
"This improvement is mainly on account of the merchandise trade deficit of USD 34.2 billion during the first quarter which contracted on year-on-year basis due to larger absolute decline in merchandise imports relative to merchandise exports," RBI said in the quarterly balance of payments data.
Reacting to the improvement in CAD, Economic Affairs Secretary Shaktikanta Das tweeted, "The first quarter CAD at 1.2 percent is better than last year. Have to remain watchful."
Rating agency Icra's senior economist Aditi Nayar said the improvement in CAD will bolster the rupee if there is a drop in sentiments related to emerging market currencies once the US Federal Reserve hikes rates.
She added, "Lower CAD largely reflects the lower net outflow of primary income. The benefit of the steep reduction in crude prices was offset by higher imports of other items and a decline in exports."
The central bank further said that higher net earnings through services and lower outflow on account of primary income, which includes profit, dividend and interest, also aided in the narrowing of the current account gap.
There was a 'marginal drop' in private transfer receipts, which primarily includes remittances by the diaspora, to USD 16.2 billion, for the reporting period, the RBI said.


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