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CareEdge Research Report
India's balance of payment scenario in Q3 FY23 fared relatively well despite global headwinds. On the current account front, upbeat services exports and healthy remittances helped cushion the impact of an elevated merchandise trade deficit.
The capital account gained from foreign investments and inflows from banking capital, translating into an overall balance of payment surplus compared to a deficit in the previous quarter.
In the final quarter of FY23, while merchandise exports will remain weak, imports are also likely to fall further, resulting in further moderation in the merchandise trade deficit.
Moreover, buoyancy in the services trade surplus and remittances are likely to continue. This signals some relief for India's external sector scenario with the current account deficit projected at 2.1% of gross domestic product in FY23, much better than our earlier expectation.
However, it is important to note that despite the better-than-expected FY23 CAD estimates, this figure remains elevated compared to the previous years.
In FY24, we expect CAD to moderate further to 1.6% of GDP, supported by healthy services sector exports. A better-than-expected current account will be supportive of the overall balance of payment scenario. This will reduce India's external vulnerability in the midst of global economic uncertainties.
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