For the quarter ending in June 2023 (Q1 FY24), India’s current account deficit (CAD) widened sequentially to $9.2 billion or 1.1% of the gross domestic product compared to $1.3 billion in Q4 FY23 (0.2% of GDP).
It is to be noted that in the year-ago period, the CAD was $17.9 billion, or 2.1% of the GDP.
On this development, the Reserve Bank of India, India’s central bank, in a statement said 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.
The country’s trade deficit rose sequentially to $56.6 billion in April-June 2023 (Q1 FY24) from $52.6 billion in Q4 FY24.
The average merchandise trade deficit was higher in July-August 2023 compared to Q1 FY24. Experts have predicted that with crude oil prices rising, the CAD is estimated to widen sequentially to $19–21 billion in Q2 FY24.
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 on a year-on-year basis.
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.
The RBI further highlighted that the net foreign portfolio investment had inflow of $15.7 billion in Q1 FY24 compared to net outflow of $14.6 billion in Q1 FY23. India’s net external commercial borrowings 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 a jump of $24.4 billion in reserves as against an accretion of $4.6 billion in the year-ago period, said the RBI.
The CAD is expected to be 1.5–1.8% of GDP in FY24) and it will depend on oil economics. CAD was 2.2% of GDP in FY23, data showed.