India’s Current Account Deficit Narrows To 1% Of GDP In Q2
Underlying the lower current account deficit on a year-on-year basis in Q2 was the narrowing of the merchandise trade deficit to $61 billion from $78.3 billion in Q2 FY23.
The current account deficit continued to narrow in the July–September quarter amid a lower merchandise trade deficit coupled with robust service exports.
India’s current account balance recorded a deficit of $8.3 billion, coming in at 1% of GDP in Q2 FY24, lower than $9.2 billion (1.1% of GDP) in Q1 FY24 and $30.9 billion (3.8% of GDP) in the corresponding quarter a year ago, according to data published by the Reserve Bank of India on Tuesday.
Underlying the lower current account deficit on a year-on-year basis in Q2 was the narrowing of the merchandise trade deficit to $61 billion from $78.3 billion in Q2 FY23.
Services exports grew by 4.2% year-on-year on the back of rising exports of software, business and travel services. Net service receipts increased, both sequentially and YoY.
Net outgo on the primary income account, reflecting payment of investment income, increased to $12.2 billion from $11.8 billion a year ago.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $28.1 billion—an increase of 2.6% from their level during the corresponding period a year ago.
In the financial account, net foreign direct investment witnessed an outflow of $0.3 billion as against an inflow of $6.2 billion in Q2 FY23.
Foreign portfolio investments recorded a net inflow of $4.9 billion, lower than $6.5 billion during Q2 FY23.
External commercial borrowings to India recorded a net outflow of $1.8 billion in Q2 FY24, as compared with a net outflow of $0.5 billion in the same period last year.
Non-resident deposits recorded a net inflow of $3.2 billion as compared with a net inflow of $2.5 billion in Q2 FY23.
There was an accretion of foreign exchange reserves (on a BoP basis) to the tune of $2.5 billion in Q2 FY24, as against a depletion of $30.4 billion in Q2 FY23.
CAD To Widen Ahead?
"Following the expansion in the merchandise trade deficit in October 2023, we expect the current account deficit for the ongoing quarter to widen appreciably, to around $18-20 billion," said Aditi Nayar, chief economist at ICRA.
Nevertheless, for the full year, Nayar forecasted the current account deficit in the range of 1.5-1.6% of GDP, unless commodity prices chart a sharp rebound.
