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ICRA Research Report
India's current account deficit widened to an all-time high of $36.4 billion (down 4.4% of gross domestic product) in Q2 FY23, with negative surprises in the merchandise trade deficit and primary income outweighing the higher-than-expected services surplus and secondary income flows. Interestingly, the Q1 FY23 CAD was revised sharply by $5.7 billion owing to a downward revision in the merchandise import numbers for that quarter.
Surprisingly, India's net financial flows printed at a muted $6.9 billion in Q2 FY23 versus $22.2 billion in Q1 FY23, with a sharp decline in foreign domestic investment inflows, outflows in banking capital, and other accounts receivable/payable, outweighing the net foreign portfolio investment inflows in the quarter
Overall, the steep decline in financial flows in Q2 FY23 vis-a-vis Q1 FY23 coupled with the spike in the CAD between these two quarters, led to a sizeable drawdown of reserves amounting $30.4 billion in Q2 FY23, after an accretion of $4.6 billion in the preceding quarter (on a balance of payment basis).
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