In Q2 FY24 current account deficit (CAD) fell to $8.3 billion, 1% of GDP, from $30.9 billion last year. An unexpectedly minor merchandise trade imbalance drove the lower CAD. Reserve Bank of India forecasts CAD to widen to $18-20 billion this quarter. Primary income account net outgo rose to $12.2 billion.
In Q2 of financial year 2023-24 (FY24) current account deficit (CAD) dropped to $8.3 billion, or 1% of GDP, from $30.9 billion, or 3.8% of GDP, prior year.
CAD was $9.2 billion, 1.1% of GDP, in Q1 FY24.
The difference between exported and imported goods and services is the current account deficit. An significant indicator of the country’s external sector.
The RBI said that the merchandise trade deficit fell to $61 billion from $78.3 billion in Q2 FY24, reducing CAD y-o-y.
Aditi Nayar, ICRA Chief Economist, Head-Research and Outreach, reported that India’s current account deficit for Q2 FY24 was $8.3 billion, below our expectation of $13 billion, due to a lower merchandise trade deficit.
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After the merchandise trade deficit increased in October 2023, Nayar anticipates the CAD for the current quarter to rise to $18-20 billion. She indicated the FY24 CAD will be 1.5–1.6% of GDP unless commodities prices bounce sharply.
A decreased merchandise trade deficit reduced CAD to $17.5 billion, or 1% of GDP, in the first half of FY24 (April–September). According to RBI data, software, business, and travel services exports rose 4.2% in Q2 FY24.
Net outgo on the primary income account, mostly investment income, rose to $12.2 billion from $11.8 billion a year earlier. Private transfer receipts, mostly from Indian expatriates, rose 2.6% to $28.1 billion.
Financial account net foreign direct investment fell $0.3 billion from $6.2 billion in Q2 FY23.
FPI net inflow was $4.9 billion, down from $6.5 billion in Q2 FY23. Net outflow of external commercial borrowings to the country was $1.8 billion in Q2 FY24, up from $0.5 billion last year.
Non-resident deposits netted $3.2 billion, up from $2.5 billion in July-September FY23.
The reporting quarter had a $2.5 billion increase in balance of payment (BoP) foreign exchange reserves, compared to $30.4 billion in Q2 FY23. BoP foreign exchange reserves rose $27 billion in April–September 2023.
Conclusion
India’s current account deficit (CAD) fell to $8.3 billion in Q2 FY24, 1% of GDP, from $30.9 billion last year. This was because the merchandise trade deficit fell to $61 billion from $78.3 billion in the previous quarter. The RBI anticipates a significant increase in the CAD for the quarter to $18-20 billion. Services exports rose 4.2% y-o-y in Q2 FY24, with primary income account net outgo reaching $12.2 billion. From the previous year, private transfer receipts rose 2.6% to $28.1 billion. The financial account outflow was $0.3 billion, foreign portfolio investment inflow was $4.9 billion, and external commercial borrowings outflow was $1.8 billion.
