India's Current Account Deficit Narrows in Q2 of 2023-24

• 28 Dec 2023

India's current account deficit (CAD) has contracted in the July-September quarter of fiscal 2023-24, primarily attributed to a reduced merchandise trade deficit and an uptick in services exports, as recently reported by the Reserve Bank of India.

Key Points

• CAD Figures: The current account deficit for Q2 of fiscal 2023-24 stands at $8.3 billion, accounting for 1% of GDP. This marks a decline from the preceding quarter's $9.2 billion, representing 1.1% of GDP. A notable improvement from the $30.9 billion (3.8% of GDP) recorded in the same quarter a year ago.
• Merchandise Trade Deficit: The narrowing of the merchandise trade deficit to USD 61.0 billion in Q2:2023-24 from USD 78.3 billion in the same period of the previous fiscal year is a significant factor contributing to the lower current account deficit.
• Services Exports Growth: Services exports have seen a growth of 4.2% on a year-on-year basis, driven by increased exports in software, business, and travel services. Net services receipts have shown growth both sequentially and on a year-on-year basis.
• Net Invisible Receipts: Higher net invisible receipts in H1 2023-24, primarily attributed to increased net services receipts, have contributed to the positive trajectory.
• Primary Income Account Outgo: The net outgo on the primary income account, reflecting payments of investment income, has increased to $12.2 billion from $11.8 billion a year ago, according to the RBI.
• External Commercial Borrowings: External commercial borrowings to India recorded a net outflow of $1.8 billion in Q2 of 2023-24, in contrast to a net outflow of $0.5 billion in the same quarter of the previous year.
• Historical Context: India's current account deficit had previously narrowed in the January-March quarter of the previous financial year, marking the lowest in seven quarters.