Home/ Economy / Current account deficit shrinks in Q3 as trade balance improves

Mumbai: India’s current account deficit (CAD) in the December quarter shrank to 2.2% of gross domestic product from 3.7% in the September quarter, primarily due to a narrowing of the merchandise trade deficit, coupled with robust services and private transfer receipts.

CAD narrowed to $18.2 billion in the December quarter of FY23 against a deficit of $30.9 billion in the preceding three months, showed Reserve Bank of India (RBI) data released on Friday. The current account balance recorded a deficit of $22.2 billion in the quarter ended 31 December 2021.

Private transfer receipts in the September quarter, mainly representing remittances by Indians employed overseas, stood at $30.8 billion, an increase of 31.7% from the same period last year. In the financial account, net foreign direct investment decreased to $2.1 billion from $4.6 billion a year ago, while net foreign portfolio investment (FPI) recorded inflows of $4.6 billion, as against outflows of $5.8 billion during the third quarter of the previous fiscal.

“Following the downward revision in the Q2FY23 current account deficit, the CAD for Q3 has printed well below our expectations, resulting in a compressed print of $67 billion for April-December 2022," said Aditi Nayar, chief economist and head of research and outreach at Icra Ltd.

Nayar said that with considerable compression in the average trade deficit in January-February from the previous three months, Icra expects CAD to recede to around $10-12 billion in the March quarter. The rating firm projected FY23 CAD of $77-80 billion (2.3% of GDP), which, it said, is quite contained compared with levels feared in mid-2022.

According to RBI, net external commercial borrowings recorded an outflow of $2.6 billion in Q3FY23, compared with an outflow of $400 million a year ago. Non-resident deposits showed net inflows of $2.6 billion, as against net inflows of $1.3 billion in Q3FY22. That apart, there was an accretion of foreign exchange reserves, on a balance of payments basis, of $11.1 billion in the quarter ended 31 December, compared with an accretion of $500 million in the year earlier.

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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Updated: 01 Apr 2023, 01:18 AM IST
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