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India’s current account deficit (CAD) widened sequentially to $9.2 billion in the quarter ended June 2023 (Q1 FY24), or 1.1 per cent of the gross domestic product (GDP) compared to $1.3 billion in Q4 FY23 (0.2 per cent of GDP). CAD was $17.9 billion, or 2.1 per cent of the GDP, in the year-ago period.
The quarter-on-quarter widening of CAD was on account of higher trade deficit coupled with a lower surplus in net services and decline in private transfer receipts, said the Reserve Bank of India (RBI) in a statement.
Trade deficit rose sequentially to $56.6 billion in April-June 2023 (Q1 FY24) from $ 52.6 billion in Q4 FY24.
Aditi Nayar, chief economist at ICRA, said CAD trailed the rating agency’s forecast. It was led by merchandise trade balance that was better than expected, even as the services trade surplus and balance of secondary income were smaller.
The average merchandise trade deficit was higher in July-August 2023 compared to Q1 FY24. With crude oil prices rising, the CAD is estimated to widen sequentially to $19-21 billion (-2.3% of GDP) in Q2 FY24, said Nayar.
Net services receipts decreased sequentially, primarily due to a decline in exports of computer, travel and business services, though remained higher year-on-year (y-o-y).
The RBI said private transfer receipts, which mostly represent remittances by Indians employed overseas, moderated to $27.1 billion in Q1 FY24 from $28.6 billion in Q4 FY23 but witnessed an increase y-o-y.
The net outgo on the income account, primarily reflecting payments of investments, declined to $10.6 billion in Q1 FY24 from $12.6 billion in Q4 FY23, though higher than a year ago.
Net foreign portfolio investment had inflow of $15.7 billion in Q1 FY24 compared to net outflow of $14.6 billion in Q1 FY23. Net external commercial borrowings to India recorded an inflow of $5.6 billion in Q1 FY24 as against an outflow of $2.9 billion a year ago.
As for the balance of payments (BoP) in Q1FY24, there was an accretion of $24.4 billion to reserves as against an accretion of $4.6 billion in the year-ago period, said the RBI.
About the current account and BoP, Madan Sabnavis, chief economist at Bank of Baroda, said the trade deficit will be pressurised by higher oil prices.
The CAD is expected to be 1.5-1.8 per cent of GDP in FY24) and it will depend on oil economics. CAD was 2.2 per cent of GDP in FY23, RBI data showed.
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