Current account deficit widens QoQ to $9.2 billion on higher trade deficit

A sequential decline in net receipts from services and fall in private transfer receipts also contribute to the widening in Q1 CAD, RBI data show; recent uptick in oil prices may further widen CAD, say economists

September 28, 2023 08:36 pm | Updated 08:36 pm IST - MUMBAI

India’s current account deficit (CAD) widened to $9.2 billion (1.1% of GDP) in the April-June quarter, from $1.3 billion (0.2% of GDP) in the preceding three months, as exports of goods shrank even as imports rose and net receipts from services also declined quarter-on-quarter, data released by the Reserve Bank of India (RBI) on Thursday showed.

The CAD was $17.9 billion (2.1% of GDP) in the year-earlier quarter of fiscal 2022-23,

“The widening of CAD on a quarter-on-quarter basis was primarily on account of a higher trade deficit coupled with a lower surplus in net services and decline in private transfer receipts,” the RBI said.

Net services receipts fell sequentially, primarily due to a decline in exports of computer, travel and business services, though they remained higher on a year-on- year (y-o-y) basis, the central bank noted.

Private transfer receipts, mainly representing remittances by Indians employed overseas, moderated to $27.1 billion in the last quarter, from $28.6 billion in Q4 of FY23.

“The fall in remittances, both on-quarter and on-year, is worrisome and will bear watching, more so because of slowing global growth,” said Dharmakirti Joshi, Chief Economist, CRISIL Ltd. “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,” he added.

“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,” Mr. Joshi said.

Net outgo on the income account, primarily reflecting payments of investment income, declined to $10.6 billion, from $12.6 billion in the preceding quarter, the RBI said.

In the financial account, net foreign direct investment declined to $5.1 billion, from $13.4 billion a year earlier. Net foreign portfolio investment recorded inflows of $15.7 billion, compared with net outflows of $14.6 billion in the year-earlier quarter.

Net external commercial borrowings to India recorded an inflow of $5.6 billion in Q1 FY24, as against an outflow of $2.9 billion a year earlier.

Non-resident deposits recorded net inflows of $2.2 billion, as compared with $0.3 billion in Q1 FY23.

There was an accretion of $24.4 billion to the foreign exchange reserves (on a BoP basis) in the first quarter of the current fiscal compared with $4.6 billion in the year-earlier period, the RBI said.

“With the average merchandise trade deficit trending higher in July-August 2023 relative to Q1 FY24 levels, and the recent rise in crude oil prices, ICRA estimates the CAD to widen sequentially to $19-21 billion (-2.3% of GDP) in Q2,” said Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA Ltd. “Overall, ICRA projects the CAD to widen to $73-75 billion (-2.1% of GDP) in FY24 from $67.0 billion (-2.0% of GDP) in FY23, building in an average crude oil price of $90/bbl in H2 FY24,” she added. 

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