India’s current account deficit (CAD) widened to 4.4 per cent of the GDP in the September 2022 quarter, compared with 2.2 per cent GDP in the previous quarter, due to a higher trade deficit, according to the latest data released by the Reserve Bank of India (RBI) on Thursday. It said underlying the CAD in Q2FY23 was the widening of the merchandise trade deficit to $83.5 billion from $63 billion in Q1FY23 and an increase in net outgo under investment income.
“India’s current account balance recorded a deficit of USD 36.4 billion (4.4 per cent of GDP) in Q2:2022-23, up from USD 18.2 billion (2.2 per cent of GDP) in Q1:2022-23 and a deficit of US$ 9.7 billion (1.3 per cent of GDP) a year ago [i.e., Q2:2021-22],” the RBI said.
It added that services exports reported a growth of 30.2 per cent on a year-on-year (y-o-y) basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a yearly basis.
“Net outgo from the primary income account, mainly reflecting payments of investment income, increased to US$ 12.0 billion from US$ 9.8 billion a year ago. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to US$ 27.4 billion, an increase of 29.7 per cent from their level a year ago,” the RBI said.
In the financial account, net foreign direct investment decreased to $6.4 billion from $8.7 billion a year ago. Net foreign portfolio investment recorded inflows of $6.5 billion, up from $3.9 billion during Q2:2021-22.
Aditi Nayar, chief economist at ICRA, said, “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. Negative surprises in the merchandise trade deficit and primary income outweighed the higher than expected services surplus and secondary income flows.”
She added that With a fall in the average trade deficit in October-November 2022 relative to the previous three months, and a robust services trade balance in October 2022, the size of the CAD may recede appreciably to around $25-28 billion in Q3 FY2023 from the all-time high recorded in the previous quarter, while remaining substantial.
Net external commercial borrowings to India recorded an outflow of $0.4 billion in Q2:2022-23 as against an inflow of $4.3 billion a year ago. Non-resident deposits recorded net inflows of $2.5 billion as against net outflows of $0.8 billion in Q2:2021-22.
Balance of Payment During April-September 2022
India recorded a current account deficit of 3.3 per cent of GDP in H1:2022-23 on the back of a sharp increase in the merchandise trade deficit, as compared with 0.2 per cent in H1:2021-22.
Net invisible receipts were higher in H1:2022-23 on a y-o-y basis on account of higher net receipts of services and private transfers.
Net FDI inflows at $20.0 billion in H1:2022-23 were comparable with $20.3 billion in H1:2021-22. Portfolio investment recorded a net outflow of $8.1 billion in H1:2022-23 as against an inflow of $4.3 billion a year ago.
In H1:2022-23, there was a depletion of $25.8 billion to the foreign exchange reserves (on a BoP basis).
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