India’s Q1 Current Account Deficit At 1.1% Of GDP

India's current account deficit widened sequentially in the April-June quarter due to a rising trade deficit coupled with a lower surplus in net services and a decline in private transfer receipts.

India's current account deficit widened to $9.2 billion, or 1.1% of the GDP, in Q1 FY24 from $ 1.3 billion, or 0.2% of GDP, in the preceding quarter, but was lower than $17.9 billion, or 2.1% of GDP, in Q1 FY23, according to a release by the RBI on Thursday.

The widening of the CAD on a quarter-on-quarter basis was primarily on account of a higher trade deficit coupled with a lower surplus in net services and a decline in private transfer receipts, the release said.

India's Q1 CAD came in line with expectations, said Madhavi Arora, lead economist at Emkay. "The widening was expected amid a higher trade deficit and a lower service surplus," she said. "However, it was still in the lows of nearly 1% of GDP and was comfortably funded by robust capital flows."

The following quarter will, however, see a substantial widening of the CAD, led by a sequential worsening of the trade balance, led by higher oil and higher core imports and further slowing service exports, Arora explained.

"All of this will imply the Q2 CAD/GDP ratio could be more than double that of Q1FY24, ranging from 2.4-2.6%."

Key Highlights 

• Net service receipts decreased sequentially, primarily due to a decline in exports of computer, travel, and business services, though they remained higher on a year-on-year (y-o-y) basis.

• Private transfer receipts, mainly representing remittances by Indians employed overseas, moderated to $27.1 billion in Q1:2023-24 from $28.6 billion in Q4:2022-23, but witnessed an increase on a year-on-year basis.

• Net outgo on the income account, primarily reflecting payments of investment income, declined to $10.6 billion in Q1:2023–24 from $ 12.6 billion in Q4:2022-23, though higher than a year ago.

• In the financial account, net foreign direct investment decreased to $5.1 billion from $13.4 billion a year ago.

• Net foreign portfolio investment recorded inflows of $15.7 billion as against net outflows of $14.6 billion in Q1:2022-23.

• Net external commercial borrowings to India recorded an inflow of $5.6 billion in Q1:2023–24 as against an outflow of $2.9 billion a year ago.