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ICICI Securities Report
India's current account deficit narrowed sharply to $1.3 billion (0.16% of gross domestic product) in Q4 FY23, but was below our forecast of a small surplus of 0.3% of GDP mainly because the ‘primary incomes' deficit widened sharply to $12.6 billion (from $8.4 billion a year earlier), driven by a big increase in profits repatriated abroad by foreign companies operating in India.
The larger primary income deficit offset the widening in the secondary incomes surplus (mainly reflecting net exports of software) to $24.8 billion in January-March 2023 (from $21.2 billion in January-March 2022) resulting in a small YoY decline in the overall incomes surplus to $12.2 billion in Q4 FY23 (from $12.8 billion in Q4 FY22).
The CAD for FY23 was 2% of GDP (slightly larger than our expectation of 1.9%), primarily because of the big deficits in Q1 FY23 (2.1% of GDP) and Q2 FY23 (3.8% of GDP) that resulted mainly from a surge in the prices of commodities (crude oil, cooking oil, coal) that India imports.
However, the four-quarter moving average of the CAD (which removes the impact of seasonality) never widened to more than 2.5% of GDP at any point in FY23, and is now on a trend decline as those commodity prices have fallen.
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