India’s current account deficit (CAD) experienced a substantial increase, surging to $9.2 billion during the first quarter of the fiscal year 2023-24. This figure represents more than seven times the CAD recorded in the previous quarter.
Data unveiled on September 28 by the Reserve Bank of India (RBI) reveals that the CAD for the period from April to June amounted to 1.1 percent of the country’s Gross Domestic Product (GDP).
The RBI attributed this widening of the CAD on a quarter-on-quarter basis primarily to a higher trade deficit, accompanied by a decreased surplus in net services and a decline in private transfer receipts.
In the first quarter of 2023, the CAD amounted to $1.3 billion, equivalent to 0.2 percent of the GDP. However, during the April-June 2022 period, the CAD expanded significantly to reach $17.9 billion, representing 2.1 percent of the GDP.
In April-June 2023, India’s services trade surplus saw an increase to $35.1 billion compared to $31.1 billion in the same period the previous year. However, this figure was lower than the $39.1 billion recorded in January-March 2023.
Likewise, while the merchandise trade deficit improved to $56.6 billion from $63.1 billion, it was higher than the $52.6 billion recorded in the preceding quarter of January-March 2023.
RBI highlighted that the sequential decrease in net services receipts was primarily due to a decline in exports of computer, travel, and business services.
On the whole, India’s trade deficit in April-June 2023 was $21.5 billion, down from $32.0 billion in April-June 2022 but higher than $13.5 billion in the first quarter of 2023.
Madhavi Arora, lead economist, Emkay Global Financial Services, said, “July-September 2023 will see “substantial widening of CAD” on account of higher oil, higher core imports, and further slowing services exports.”
“All of this will imply July-September 2023 CAD/GDP ratio could be more than double of April-June 2023 – ranging from 2.4-2.6 percent,” Arora said.
Aditi Nayar, chief economist, head – research & outreach, ICRA, said, “CAD widened to $9.2 billion (-1.1% of GDP) in Q1 FY2024 from $1.3 billion in Q4 FY 2023 (-0.2% of GDP), but trailed our forecast led by a healthier than anticipated merchandise trade balance, even as the services trade surplus and balance of secondary income were smaller than anticipated.”
Nayar added that with the average merchandise trade deficit trending higher in July-Aug 2023 relative to Q1 FY2024 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 FY2024.
Overall, ICRA projects the CAD to widen to $73-75 billion (-2.1% of GDP) in FY2024 from $67.0 billion (-2.0% of GDP) in FY2023, building in an average crude oil price of $90/bbl in H2 FY2024.
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