Current Account Deficit Eases To $10.5 Billion In October–December 2023

India's current account deficit eased in the October–December 2023 period, aided by a lower merchandise trade deficit.

India's current account balance recorded a deficit of $10.5 billion (1.2% of GDP) in Q3 FY24, lower than $11.4 billion (1.3% of GDP) in Q2 FY24 and $16.8 billion (2% of GDP) in the corresponding quarter a year ago, according to data published by the RBI on Tuesday.

• The merchandise trade deficit of $71.6 billion was marginally higher than $71.3 billion during Q3 FY23.

• Services exports grew by 5.2% year-on-year, on the back of rising exports of software, business and travel services. Net service receipts increased both sequentially and from a year ago, which helped cushion the current account deficit.

• Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $13.2 billion from $12.7 billion a year ago.

• Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $31.4 billion, an increase of 2.1% over their level during the corresponding period a year ago.

• In the financial account, foreign direct investment recorded a net inflow of $4.2 billion as compared with a net inflow of $2 billion in Q3 FY23.

• Foreign portfolio investments recorded a net inflow of $12 billion, higher than $4.6 billion during Q3 FY23.

• External commercial borrowings to India recorded a net outflow of $2.6 billion in Q3 FY24, as compared with a net outflow of $2.5 billion a year ago.

• Non-resident deposits recorded a higher net inflow of $3.9 billion than $2.6 billion a year ago.

• There was an accretion of foreign exchange reserves (on a BoP basis) to the tune of $6 billion in Q3 FY24, as compared with an accretion of $11.1 billion a year ago.

For the full fiscal year, the CAD is now expected at about 0.7% of the GDP, reflecting stronger-than-expected services and remittances inflows, according to Gaura Sengupta, economist at IDFC First Bank.

The fourth-quarter current account can be a mild positive, led by strong services surplus, and remittances and moderation in trade deficit. In the quarter, the balance-of-payment surplus is likely to rise to about $20 billion, led by a mild positive current account, Sengupta said.