India's current account deficit continued to narrow in the December quarter amid lower merchandise trade deficit, coupled with robust services and private transfer receipts.
India's current account deficit declined to $18.2 billion (2.2% of GDP) in Q3 FY23 from $30.9 billion (3.7% of GDP) in Q2 FY23 and $22.2 billion (2.7% of GDP) a year ago.
Underlying the lower current account deficit in Q3 FY23 was a narrowing of merchandise trade deficit to $72.7 billion from $78.3 billion in Q2 FY23.
Services exports reported a growth of 24.5% on a year-on-year basis on the back of rising exports of software, business and travel services. Net services receipts increased sequentially and on a YoY basis.
Following the downward revision in the Q2 FY23 current account deficit, the CAD for Q3 has printed well below expectations, resulting in a compressed print of $67 billion for April-December 2022, said Aditi Nayar, chief economist at ICRA.
With considerable compression in the average trade deficit in January-February 2023, relative to the previous three months, the size of the CAD is expected to recede further to around $10-12 billion in Q4 FY23.
"Based on this, we project the FY23 CAD at $77-80 billion (-2.3% of GDP), which is quite contained as compared to the levels that were being feared in mid-2022," Nayar said.
Other Key Highlights
Net outgo from the primary income account, mainly reflecting investment income payments, increased to $12.7 billion from $11.5 billion a year ago.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $30.8 billion—an increase of 31.7% from their level a year ago.
In the financial account, net foreign direct investment decreased to $2.1 billion from $4.6 billion a year ago.
Net foreign portfolio investment recorded inflows of $4.6 billion, as against an outflow of $5.8 billion in Q3FY22.
Net external commercial borrowings to India recorded an outflow of $2.6 billion in Q3 FY23 as compared with an outflow of $0.4 billion a year ago.
Non-resident deposits recorded net inflows of $2.6 billion as compared with net inflows of $1.3 billion in Q3 FY22.
There was an accretion to foreign exchange reserves (on a BoP basis) to the tune of $11.1 billion in Q3 FY23 as compared with an accretion of $0.5 billion in Q3 FY22.
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