India’s current account deficit (CAD) narrowed to $9.2 billion (1.1 per cent of GDP) in the first quarter (April-June) of 2023-24 from $17.9 billion (2.1 per cent of GDP) in the same period last year. But it was higher than the $1.3 billion (0.2 per cent of GDP) in the preceding quarter.
A deficit in the current account indicates that a country’s imports (including goods, services and investments) are greater than its is exports.
The widening of CAD on a quarter-on-quarter basis was primarily on account of higher trade deficit coupled with a lower surplus in net services and decline in private transfer receipts, the Reserve Bank of India said Thursday.
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“Current account deficit is expected to rise on-quarter in the first quarter of FY24 as merchandise trade deficit has widened again and the services trade surplus has moderated a tad,” said Dharmakirti Joshi, Chief Economist, CRISIL Ltd.
Madhavi Arora, Lead Economist at Emkay Global Financial Services, said the second quarter of FY24 will see a substantial widening of CAD led by sequential worsening of trade balance, led by higher oil and core imports, and slowing services exports. All of this will imply that the Q2 CAD/GDP ratio could be more than double of Q1 FY24, ranging from 2.4-2.6 per cent, Arora said.
The central bank said net services receipts decreased sequentially, primarily owing to a decline in exports of computer, travel and business services. But these receipts remained higher on a year-on-year (y-o-y) basis, RBI said. Private transfer receipts, mainly representing remittances by Indians employed overseas, moderated to $27.1 billion in Q1 of FY24 from $28.6 billion in Q4 of FY23 but increased y-o-y.
“The fall in remittances, both on-quarter and on-year, is worrisome and will bear watching, more so because of slowing global growth. This can have a bearing on CAD, which was anyway expected to rise sequentially in the first quarter of this fiscal because of higher merchandise trade deficit and softening in services trade surplus,” Joshi said.
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To boot, the recent uptick in oil prices will weigh on merchandise trade deficit.
“Together, these have put upside pressure on our estimate of CAD for this fiscal, which stands at 1.8% of GDP,” Crisil said.
Net outgo on the income account, primarily reflecting payments of investment income, declined to $10.6 billion in Q1 of FY24 from $12.6 billion in Q4 of FY23, though higher than a year ago, the RBI said.
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In the financial account, net foreign direct investment decreased to $5.1 billion from $13.4 billion a year ago. Net foreign portfolio investment recorded inflows of $15.7 billion as against net outflows of $14.6 billion in Q1 of FY23.
Net external commercial borrowings to India recorded an inflow of $5.6 billion in Q1 of FY24 as against an outflow of $2.9 billion a year ago. Non-resident deposits recorded net inflows of $2.2 billion as compared with $0.3 billion in Q1 of FY23.
External debt at $629.1 bn
India’s external debt was placed at $629.1 billion as of June 2023, recording an increase of $4.7 billion over its level at end-March 2023. The external debt to GDP ratio declined to 18.6 per cent at end-June 2023 from 18.8 per cent at end-March 2023, RBI said.
Valuation effect due to the appreciation of the US dollar vis-à-vis the major currencies such as yen and SDR amounted to $3.1 billion. Excluding the valuation effect, external debt would have increased by $7.8 billion instead of $4.7 billion at end-June 2023 over end-March 2023, it said.
At end-June 2023, long-term debt (with original maturity of above one year) was placed at $505.5 billion, recording an increase of $9.6 billion over its level at end-March 2023, RBI said.