India’s current account deficit almost halves to $9.2 billion in June quarter

2023-09-28 11:29:22

India’s current account balance- the difference between country’s exports and imports almost halved to a deficit of $9.2 billion in the June quarter from $17.9 billion in the same period a year ago as lower global crude and commodity prices helped narrow the merchandise trade deficit and higher software exports helped in lowering the current account deficit.

In terms of percentage of country’s gross domestic product or GDP the country’s current account deficit or CAD narrowed to .1 per cent of GDP in the June quarter from 2.1 per cent of GDP period comparable qaurter ending June 2022. But it was higher than $ 1.3 billion (0.2 per cent of GDP) in the preceding Mrach 2023 quarter, according to the preliminary numbers released by the Reserve Bank of India.

” The current account deficit widened in Q2 on account of a higher goods trade deficit and increase in outbound remittances,” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays. Higher foreign fund flows in the quarter meant the capital account financed the CAD comfortably, leading to a BoP surplus.

The widening of 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 Reserve Bank said in a release

The merchandise trade deficit was lower at $56.6 billion during the June quarter compared to $63 billion in the same period a year ago. The contribution of software services was significant at $ 33.9 bn compared to $ 30.7 bn in the June quarter last year. ” This is a positive sign which has been helped by the fact that the US economy has done much better than expected which has kept demand for such services buoyant, ” said Madan Sabnavis, chief economist, Bank of Baroda.

In the capital account, net foreign direct investment was lower in net terms at just $ 5.1 bn compared to $ 13.4 bn a year ago. Foreign portfolio investment in net terms was high at $ 15.7 bn compared with an outflow of $ 14.6 bn last year. NRI deposits were higher by $ 2.2 billion during the quarter compared to only $489 million last year. As a result, the balance of payments ended in an overall surplus of $24,4 billion compared to only $4.6 billion in the same period last year.With the average merchandise trade deficit trending higher in Jul-Aug 2023 relative to June quarter levels and the recent rise in crude oil prices, Ratings firm Icra estimates the CAD to widen sequentially to $19-21 billion or 2.3% of GDP in the September quarter.

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