- India’s current account deficit has declined to 2.2 per cent of GDP in Q3 from 2.7 per cent in the year-ago period
India’s current account deficit (CAD), which is the difference between the inflow and outflow of foreign exchange, has narrowed to $18.2 billion or 2.2 per cent of GDP in the October to December quarter (Q3FY23) from 4.4 per cent of the GDP in the quarter ending September, according to the data released by the Reserve Bank of India (RBI) on Friday.
More than half of the narrowing is due to a reduction in the goods trade deficit, suggesting weakening domestic demand in Asia’s third-largest economy.
CAD, a key indicator of the external sector, had widened to 3.3 per cent of GDP in first half of 2022-23 from 0.2 per cent in the comparable period of 2021-22 on the back of a sharp increase in the merchandise trade deficit.
Underlying the lower CAD in Q3FY23 was a narrowing of merchandise trade deficit to $72.7 billion from $78.3 billion in Q2, coupled with robust services and private transfer receipts.
“Following the downward revision in the Q2 FY2023 current account deficit, the CAD for Q3 has printed well below our expectations, resulting in a compressed print of US$67 billion for April-December 2022,” said ICRA’s Nayar.
“With a considerable compression in the average trade deficit in Jan-Feb 2023 relative to the previous three months, we expect the size of the CAD to recede further to around $10-12 billion in Q4 FY2023. Based on this, we project the FY2023 CAD at $77-80 billion (-2.3% of GDP), which is quite contained as compared to the levels that were being feared in mid 2022,” Nayar stated.
The provisional estimate of $36.4 billion for July-September’s CAD, which was an all-time high for a quarter, has been revised downwards significantly ‘due to downward adjustment in Customs data’, the central bank said.
Services exports
Exports in services witnessed a growth of 24.5 per cent on-year on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a year-on-year basis.
In the Oct-Dec quarter, net foreign direct investment declined to $2.1 billion from $4.6 billion in the same period a year ago.
Net foreign portfolio investment recorded inflows of $4.6 billion in the December quarter as compared to an outflow of $5.8 billion in the third quarter of FY22.
The central bank said that the net outgo from the primary income account, mainly reflecting investment income payments, rose to $12.7 billion from $11.5 billion in the year-ago period.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $30.8 billion in the December quarter, an increase of 31.7 per cent from their level a year ago.
Non-resident deposits recorded net inflows of $2.6 billion in the third quarter of the current fiscal as compared to net inflows of $1.3 billion in the year-ago period.
India had recorded a CAD of 2.7 per cent of GDP during April-December 2022 period as compared to a deficit of 1.1 per cent during April-December 2021 period.
The government had earlier said that it was aware of the downside risks to the Indian economy and will closely monitor the CAD in view of the decline in export growth.
Minister of State for Finance Pankaj Chaudhary had said that the government has implemented several measures to limit the impact of external factors on India’s inflation and growth.
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