The Reserve Bank of India (RBI) has reported that India’s current account deficit (CAD) for the April-June period has improved, narrowing to USD 9.2 billion or 1.1 percent of GDP. In the same period last year, the CAD stood at USD 17.9 billion or 2.1 percent of GDP.
However, it’s worth noting that this essential indicator of external sector strength has widened significantly compared to the preceding quarter, reaching USD 1.3 billion or 0.2 percent. The widening of CAD on a quarter-on-quarter basis was primarily attributed to a higher trade deficit, coupled with a lower surplus in net services and a decline in private transfer receipts, according to the RBI. Net services receipts decreased sequentially, mainly due to a decline in exports of computer, travel, and business services, although they were higher on a year-on-year (y-o-y) basis.
Private transfer receipts, which represent remittances by Indians employed overseas, moderated to USD 27.1 billion in the quarter, down from USD 28.6 billion in the quarter-ago period but higher on a year-on-year basis. Net outgo on the income account, primarily reflecting payments of investment income, declined to USD 10.6 billion in the June quarter from USD 12.6 billion in the March quarter but was higher than the year-ago period.
Net foreign direct investment decreased to USD 5.1 billion from USD 13.4 billion a year ago, while the net foreign portfolio investment recorded inflows of USD 15.7 billion, compared to net outflows of USD 14.6 billion in the year-ago period. Net external commercial borrowings to India recorded an inflow of USD 5.6 billion in the quarter, compared to an outflow of USD 2.9 billion a year ago, the RBI said. Non-resident deposits recorded net inflows of USD 2.2 billion, up from USD 0.3 billion in the year-ago period.
There was an accretion of USD 24.4 billion to the forex reserves on a balance of payments basis in the quarter, compared to USD 4.6 billion in Q1FY23, the central bank said. Aditi Nayar, chief economist at the domestic rating agency Icra, noted that with the average merchandise trade deficit trending higher in July-August 2023 relative to Q1 FY24 levels and the recent rise in crude oil prices, the CAD is likely to widen sequentially to USD 19-21 billion or 2.3 percent of GDP in Q2 FY24. The CAD is likely to widen to USD 73-75 billion or 2.1 percent of GDP in FY24 from USD 67 billion or 2.0 percent of GDP in FY23, she added.
