Current account deficit narrows to 1.2% of GDP in Q3 of FY24

New Delhi: India's current account deficit narrowed to $10.5 billion or 1.2% of the country’s gross domestic product (GDP) in October-December 2023 quarter largely due to higher service exports, data released by the Reserve Bank of India (RBI) on Tuesday showed.  

It stood at $16.8 billion or 2% of GDP in the corresponding period the previous year. In the second quarter of 2023-24, the current account deficit stood at $11.4 billion or 1.3% of GDP. So the country’s current account deficit during the third quarter of the current financial year narrowed year-on-year (Y-oY) as well as sequentially.

The current account deficit or CAD is the shortfall between the total amount of money received from overseas and money sent abroad. This means during October-December period India sent abroad $10.5 billion more than the amount it received.

During the October-December 2023 quarter, the merchandise trade deficit stood at $71.6 billion, marginally higher than $71.3 billion recorded during the corresponding period of previous year.

However, net services receipts increased both sequentially and from a year ago that helped cushion the current account deficit, the RBI said in a statement. Services exports increased by 5.2% in the October-December quarter on a Y-o-Y basis on the back of rising exports of software, business and travel services.

“Services demand has remained healthy despite global headwinds. The trend continues to be strong with the latest high frequency indicators,” said Paras Jasrai, senior analyst at India Ratings and Research.

According to India Ratings and Research, the current account deficit is likely to decline further in January-March quarter. The agency expects the merchandise exports to increase to around $117 billion in the January-March quarter, registering a Y-o-Y growth of 2%. This would be a seven-quarter high. 

Likewise, the merchandise imports are expected to touch a six-quarter high of around $180 billion in 4Q FY24, up 8% Y-o-Y, Ind-Ra said in a note.

Overall, Ind-Ra expects the goods trade deficit to moderate to $64 billion in 4Q FY24.

As per the RBI data, net outgo on the primary income account, primarily reflecting payments of investment income, increased to $13.2 billion in Q3 of 2023-24 from $12.7 billion recorded in the same period a year ago.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $31.4 billion in the October-December period, an increase of 2.1% over their level during the corresponding period a year ago.

Foreign direct investment (FDI) net inflow more than doubled to $4.2 billion in Q3 of the current financial year from $2 billion recorded in the same period of the previous year.

For the first nine months of 2023-24 the current account deficit narrowed to $31 billion or 1.2% of GDP as against $65.6 billion or 2.6% of GDP recorded in the corresponding period of 2022-23. This is despite a sharp drop in FDI inflows. Net FDI inflow during April-December 2023 dipped to $8.5 billion from $21.6 billion recorded in April-December 2022 period.