NEW DELHI: India’s current account deficit (CAD) has widened to an all-time high of 4.4% of gross domestic product (GDP) in second quarter of 2022-23 on account of high merchandise trade deficit of $83.5 billion.
In value terms, the CAD in the second quarter was $36.4 billion in the second quarter compared to $18.2 billion (2.2% of the GDP) in the first quarter, data released by the Reserve Bank of India (RBI) showed. Though net services exports showed a surplus of $34.4 billion during the quarter, it was not enough to reduce the deficit created due to the merchandise trade deficit.
The current account deficit largely means the country is importing more than it is exporting. Though there are other components in the current account like net income from foreign investors, it forms a small portion of the current account.
Net outgo from the primary income account, which mainly reflects payments of investment income, increased to $12 billion from $9.8 billion a year ago. This also added to the deficit. “While it was expected that India’s current account deficit would widen to an all time high in Q2 FY2023, the size of the deficit exceeded even the upper end of our forecast range of $31-34 billion,” says Aditi Nayar, chief economist, ICRA Ltd.
On the positive side, experts feel that with trade deficit showing signs of moderation, it is likely that the CAD in the third and fourth quarter is likely to be much lower below $30 billion. Madhavi Arora, lead economist, Emkay Global Financial Services, says CAD has likely peaked in the current financial year as commodity prices have eased.
Deficit showing signs of moderation
Experts feel with trade deficit showing signs of moderation, it is likely that CAD in the third and fourth quarter will be below $30 billion. Madhavi Arora, lead economist, Emkay Global, says CAD has likely peaked in the current fiscal as commodity prices have eased