Current account deficit falls sharply to 1% of GDP in Q2

Remittances, non-resident deposits help lower merchandise trade deficit [View in browser]( [See all newsletters]( 27 December 2023 Current account deficit falls sharply to 1% of GDP in Q2 India’s current account deficit (CAD) narrowed sharply to 1 per cent of GDP in the second quarter (Q2) of FY24 against 3.8 per cent in the year-ago quarter due to lower merchandise trade deficit. Healthy receipts from services exports, decent growth in private transfer receipts (mainly remittances) and robust inflows in non-resident deposits also helped narrow the CAD. CAD occurs when the value of imports of goods and services is greater than the value of exports of goods and services. In absolute terms, India’s current account balance (trade balance plus net factor income such as interest and dividends from foreign investments or workers’ remittances and transfers from abroad) in Q2FY24 (July-September) recorded a lower deficit of $8.3 billion  ($30.9 billion in Q2FY23). The country’s CAD in the reporting quarter was slightly lower vis-a-vis $9.2 billion (1.1 per cent of GDP) in Q1FY24 (April-June). The RBI observed that underlying the lower current account deficit on a year-on-year (y-o-y) basis in Q2FY24 was the narrowing of merchandise trade deficit to $61 billion from $78.3 billion in the year ago quarter. Referring to the reporting quarter’s CAD print of $8.3 billion, Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA, said it is “well below our expectation of around $13 billion, led primarily by a smaller-than-anticipated merchandise trade deficit.” Following the expansion in the merchandise trade deficit in October 2023, Nayar expects the CAD for the ongoing quarter to widen appreciably, to around $18-20 billion. “Nevertheless, we now foresee the FY24 CAD in a range of 1.5-1.6 per cent of GDP, unless commodity prices chart a sharp rebound,” per her assessment. In his December 8th monetary policy statement, RBI Governor Shaktikanta Das underscored that in October 2023, both merchandise exports and imports came back into the expansionary zone. “Services exports remained buoyant during Q2FY24. India has remained the top remittance-receiving country. “The net balance under services and remittances is expected to partly offset India’s current account deficit and keep it within the parameters of viability,” Das then said. Services exports As per RBI’s statement on “Developments in India’s Balance of Payments for Q2”, services exports grew by 4.2 per cent on a y-o-y basis to $83.4 billion ($80 billion) on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a y-o-y basis. Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $12.2 billion from $11.8 billion a year ago. The central bank said private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $28.1 billion, an increase of 2.6 per cent from their level during the corresponding period a year ago. FDI, FPI Net foreign direct investment (FDI) witnessed an outflow of $0.3 billion as against an inflow of $6.2 billion in Q2FY23. Foreign portfolio investment (FPI) recorded net inflow of $4.9 billion, lower than $6.5 billion during Q2FY23. ECBs & NRI deposits External commercial borrowings to India recorded net outflow of $1.8 billion in Q2FY24 as compared with net outflow of $0.5 billion in Q2FY23. Non-resident deposits recorded net inflow of $3.2 billion as compared with net inflow of $2.5 billion in Q2FY23. Non-resident deposits recorded net inflow of $3.2 billion as compared with net inflow of $2.5 billion in Q2FY23. You Might Also Like [Year in Review: From ‘incredible’ to ‘inevitable’, India a global force to reckon with]( [Economy]( [Year in Review: From ‘incredible’ to ‘inevitable’, India a global force to reckon with]( [Mutual funds expect buoyancy to continue with stable SIP inflows]( [Markets]( [Mutual funds expect buoyancy to continue with stable SIP inflows]( [Fewer new company formations and closures point towards stabilising economy]( [Data Focus]( [Fewer new company formations and closures point towards stabilising economy]( [UAE initiates process of investing $2 billion in food parks in India]( [Agri Business]( [UAE initiates process of investing $2 billion in food parks in India]( Stay informed Subscribe to businessline to stay up-to-date with in-depth business news from India [arrow]( Copyright @ 2023, THG PUBLISHING PVT LTD. If you are facing any trouble in viewing this newsletter, please try [here]( Manage your newsletter subscription preferences [here]( If you do not wish to receive such emails go [here](