NEW DELHI: India’s current account deficit (CAD) recorded a significant decline to 1% of the gross domestic product (GDP) or $8.3 billion during July-September as against 3.8% of GDP or $30.9 billion in the same period of the previous year, as reported by the Reserve Bank of India (RBI) on Tuesday.
This improvement was primarily attributed to a reduction in the merchandise trade deficit and a growth in services exports.
CAD is an important economic indicator that measures the gap between imports and exports of goods and services. It provides insights into trade imbalances, foreign investment reliance, currency depreciation risks, economic stability, and policy implications. Monitoring CAD helps policymakers make informed decisions on public finance.
In the first quarter (April-June) of 2023-24, the deficit stood at $9.2 billion, equivalent to 1.1% of GDP. RBI data on developments in India’s Balance of Payments for the second quarter of 2023-24 revealed that the lower current account deficit was mainly driven by a fall in merchandise trade deficit from $78.3 billion to $61.0 billion on a year-on-year basis. Additionally, services exports demonstrated a 4.2% year-on-year (YoY) growth, bolstered by the increasing exports of software, business, and travel services.
It also noted that net services receipts saw sequential and YoY rises. In terms of economic growth, GDP grew 7.6% during Q2FY24, positioning it as the world’s fastest-growing major economy. Government spending rose by 12.4% year-on-year in the September quarter, compared to a contraction of 0.7% in the previous quarter.
However, private consumption growth unexpectedly slowed to 3.1% year-on-year from 6%. The country’s balance of payments showed a small surplus of $2.5 billion in the September quarter, a notable improvement from the $30.4 billion deficit recorded a year ago. However, the surplus did decline significantly on a sequential basis from $24.4 billion in the June quarter.
In November, India’s merchandise trade deficit narrowed considerably to $20.58 billion compared to the previous month’s record levels of $31.46 billion owing to moderated imports of gold, petroleum, and electronic goods.
“We now foresee the FY24 CAD in a range of 1.5-1.6% of GDP, unless commodity prices chart a sharp rebound,” according to Aditi Nayar, chief economist, ICRA.