Current account deficit narrows in Oct-Dec quarter

India’s current account deficit narrowed to $10.5 billion, or 1.2% of gross domestic product (GDP), in the October-December quarter, data released by the Reserve Bank of India showed.

The current account deficit during the quarter was lower than the $11.4 billion, or 1.3% of GDP, reported in the July-September quarter, and $16.8 billion, or 2% of GDP, a year ago.

A current account deficit occurs when total imports of goods, services, and transfers exceed its total exports.

The statement released by the apex bank recorded a credit of $235.942 billion and a debit of $246.446, resulting in a deficit of $10.504 billion.

Taking into account the data from the previous two quarters, the current account deficit in the April-December 2023 period stands at $31 billion.

The current account deficit moderated during April-December 2023 from 2.6% of GDP in the corresponding period a year ago on the back of a lower merchandise trade deficit.

Net invisibles receipts were higher during April-December 2023 than a year ago, primarily on account of services and transfers, the RBI said.

The RBI further said that the merchandise trade deficit at $71.6 billion was marginally higher than $71.3 billion during Q3 in 2022-23.

Meanwhile, services exports grew by 5.2% on a year-on-year (YOY) basis on the back of rising exports of software, business and travel services.

Net services receipts increased both sequentially and from a year ago that helped cushion the current account deficit.

Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $13.2 billion from $ 12.7 billion a year ago.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $31.4 billion, an increase of 2.1% over their level during the corresponding period a year ago.

In the financial account, foreign direct investment recorded a net inflow of $4.2 billion as compared with a net inflow of $2.0 billion in Q3 last year.

Foreign portfolio investment recorded a net inflow of $ 12.0 billion, higher than $ 4.6 billion during Q3 in 2022-23.

External commercial borrowings to India recorded a net outflow of $2.6 billion in Q3 this year as compared with a net outflow of $2.5 billion a year ago.

Non-resident deposits recorded a higher net inflow of $3.9 billion than $2.6 billion last year.

“There was an accretion of foreign exchange reserves (on a balance of payments basis) to the tune of $6.0 billion in Q3:2023-24 as compared with an accretion of $11.1 billion a year ago,” the central bank data showed.

The net foreign direct investment (FDI) inflow was at $8.5 billion during the April-December 2023 period, significantly lower than $21.6 billion during April-December 2022.

During April-December 2023, portfolio investment recorded a net inflow of $32.7 billion as against an outflow of $3.5 billion during the corresponding period a year ago.

In April-December 2023, there was an accretion of $32.9 billion to the foreign exchange reserves, the RBI said.