India's current account deficit narrows sharply to $1.3 billion in Q4FY23 as trade deficit moderates

India's current account deficit narrowed sharply in the fourth quarter of fiscal year 2022-23, to $1.3 billion owing to moderation in trade deficit and robust services exports. The Q4 CAD dropped to 0.2% of GDP. Further, in Q4, FDI recorded robust sequential rise to $6.4 billion, on the contrary, forex exchange reserves dropped drastically.

As per RBI's latest data, India's current account deficit (CAD) decreased to $1.3 billion, 0.2% of GDP in Q2 of the 2022-23 financial year. 

In the previous quarter, the CAD stood at $16.8 billion, 2% of GDP. A year ago, in Q4, the CAD was at $ 13.4 billion, or 1.6% of GDP.

In its balance of payments notification, RBI said, "The sequential decline in CAD in Q4:2022-23 was mainly on account of a moderation in the trade deficit to $52.6 billion in Q4:2022-23 from $71.3 billion in Q3:2022-23, coupled with robust services exports."

The country witnessed a jump in net services receipts on both sequential and year-on-year basis -- due to a rise in net earnings from computer services.

Further, the central bank's data revealed that private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $28.6 billion, up by 20.8% from their level a year ago.

Also, net outgo on the primary income account, largely reflecting net income payments on foreign investment, increased on a year-on-year basis, while showing a marginal decline sequentially.

Under financial accounts, India's net foreign direct investment (FDI) came in at $6.4 billion in Q4FY23 --- which was higher than $2 billion in Q3 of FY23. However, FDI was lower compared to the $13.8 billion recorded a year ago in Q4.

In Q4, there was an accretion to the foreign exchange reserves (on a BoP basis) to $5.6 billion, as against a depletion of $16 billion in Q4 of FY22.

For the full-year FY23, the current account balance registered a deficit of 2% of GDP as compared to a deficit of 1.2% in FY22, as the trade deficit widened to $265.3 billion from $189.5 billion a year ago. Net FDI inflows at $28 billion in 2022-23 were lower than $38.6 billion in 2021-22. In 2022-23, there was a depletion of $ 9.1 billion of the foreign exchange reserves (on a BoP basis).