Home / Economy / Current account deficit at 2.8% of GDP in Apr-Jun, hits $24 billion

Current account deficit at 2.8% of GDP in Apr-Jun, hits $24 billion

The widening in CAD was driven by a continued increase in goods trade deficit, said analysts. (Photo: Mint)Premium
The widening in CAD was driven by a continued increase in goods trade deficit, said analysts. (Photo: Mint)

The CAD increased to $23.9 billion in the June quarter of FY23 against a deficit of $13.4 billion in the preceding three months, showed Reserve Bank of India (RBI) data released on Thursday. In Q1 of FY22, the current account balance recorded a surplus of $6.6 billion, or 0.9% of GDP

MUMBAI : India’s current account deficit (CAD) widened to 2.8% of gross domestic product (GDP) in the three months through June, up from 1.5% in the March quarter, primarily due to a widening of the merchandise trade deficit and an increase in net outgo of investment income payments.

The CAD increased to $23.9 billion in the June quarter of FY23 against a deficit of $13.4 billion in the preceding three months, showed Reserve Bank of India (RBI) data released on Thursday. In Q1 of FY22, the current account balance recorded a surplus of $6.6 billion, or 0.9% of GDP.

Private transfer receipts in the June quarter, mainly representing remittances by Indians employed overseas, increased to $25.6 billion, up 22.6% from the same period last year. In the financial account, net foreign direct investment (FDI) rose to $13.6 billion, from $11.6 billion a year ago, while net foreign portfolio investment recorded outflows of $14.6 billion as against net inflows of $0.4 billion during Q1 of 2021-22.

“While the current account deficit nearly doubled in Q1 FY23 relative to Q4 FY22, following the spike in commodity prices and sluggish exports, it came in significantly below our forecast of around $30 billion, with a positive surprise in the goods, services and secondary income balances," said Aditi Nayar, chief economist, Icra Ltd.

Based on preliminary trends for July-August and Icra’s expectation for September, the current account deficit is projected to widen further to $35-40 billion in the September quarter, or around 4.2-4.8% of GDP.

“However, we are cautiously hopeful that the size of CAD will ease appreciably in the second half of FY23, with seasonally stronger exports and softer commodity prices. Nevertheless, we still expect the current account deficit to exceed 3% of GDP in FY23," said Nayar.

According to RBI, net external commercial borrowings (ECBs) to India recorded an outflow of $3 billion in Q1 of 2022-23 as against an inflow of $0.2 billion in the same period last year. Non-resident deposits recorded net inflows of $0.3 billion, as compared to $2.5 billion in the first three months of the previous fiscal. That apart, there was an accretion of $4.6 billion to the forex reserves on a balance of payments basis in Q1 FY23 as compared to $31.9 billion in Q1 FY22.

Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics at Barclays, expects further substantial widening in the September quarter, maintaining the current account deficit projection of $115 billion or 3.3% GDP for FY23.

“The widening in the current account deficit was driven by a continued increase in the goods trade deficit, although a slightly larger services surplus, and remittances, ensured the deficit did not widen dramatically," said Bajoria.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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