India’s Current Account Deficit At 1.1% Of GDP In Q1, Led By Broad-Based Deterioration: Motilal Oswal

Motilal Oswal Report

India’s current account deficit stood at $9.2 billion (or 1.1% of gross domestic product) in Q1 FY24, higher than $1.3 billion in Q4 FY23 and lower than $17.9 billion in Q1 FY23. The number is in line with the Bloomberg consensus of a CAD of $8.9 billion and higher than our expectation of a $5.7 billion.

The deterioration on a sequential (QoQ) basis was broad-based. Merchandise trade deficit widened, alongside a diminished surplus in services and a decrease in the surplus on income account. Merchandise trade deficit increased to $56.6 billion (or 6.6% of GDP) in Q1 FY24 versus $52.6 billion (6% of GDP) in Q4 FY23. At the same time, services’ surplus came down to four-quarter lowest of $35 billion (4.1% of GDP) in Q1 FY24 and the surplus on income account stood at a six quarter low of $12.3 billion (1.4% of GDP) in Q1 FY24.

Higher merchandise trade deficit can be explained by lower goods exports, particularly non-oil exports ($105 billion in Q1 FY24 versus $115.8 billion in Q4 FY23 and $122.8 billion in Q1 FY23). On the other hand, petroleum exports remained robust in Q1 FY24, amounting to $18 billion (versus $15.3 billion in Q4 FY23 and $26.9 billion in Q1 FY23). Trade deficit stood at 6.6% of GDP in Q1 FY24 versus 6% of GDP in Q4 FY23, and 7.4% of GDP in Q1 FY23.

Lower invisibles surplus was mainly due to deceleration in services exports to $80.6 billion in Q1 FY24 from $85.8 billion in Q4 FY23 and $76 billion in Q1 FY23. Apart from this, a decline in secondary income to $27.1 billion in Q1 FY24 from $28.6 billion in Q4 FY23 also contributed to the decline in invisibles surplus. The invisibles surplus stood at a four-quarter low of 5.5% of GDP in Q1 FY24.

Notably, India’s current account surplus, excluding petroleum products came down to $16.2 billion (or 1.9% of GDP) in Q1 FY24 versus a surplus of $29.2 billion in Q4 FY23 (or 3.3% of GDP).

Excluding gold, India’s CAS was just 0.1% of GDP in Q1 FY24, down from 0.6% of GDP in Q4 FY23, but better than CAD in the previous five quarters. Similarly, the CAS, excluding gold and petroleum products, came down sharply to $25.9 billion (or 3% of GDP) during the quarter.

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