India’s current account deficit (CAD) widened to $23.9 billion, or 2.8 per cent of gross domestic product (GDP), in the first quarter of the current fiscal due to higher trade deficit.
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The country had reported a current account surplus of $6.6 billion, or 0.9 per cent of GDP, in the first quarter of 2021-22, the Reserve Bank of India data on Thursday showed.
The deficit in April-June quarter of 2022-23 widened $13.4 billion, or 1.5 per cent of GDP, in the fourth quarter of the previous fiscal.
The current account can be expressed as the difference between the value of exports of goods and services and the value of imports of goods and services.
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A deficit implies that the country is importing more goods and services than it is exporting- although the current account also includes net income (such as interest and dividends) and transfers from abroad (such as foreign aid).
Underlying the current account deficit in Q1 of 2022-23 was the widening of the merchandise trade deficit to $68.6 billion from $54.5 billion in Q4 of 2021-22 and an increase in net outgo of investment income payments, RBI said in a release.
During the reporting quarter, the balance of payment (BoP) surplus narrowed to $4,595 million from $31,870 million in the corresponding quarter of the previous fiscal.
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“The problem on CAD was mainly on account of widening trade deficit. However, a lot of support has come from the invisibles account with both software and remittances witnessing higher net inflows of $30.7 billion and $23 billion respectively,” Bank of Baroda’s chief economist Madan Sabnavis said.
Higher GDP number due to inflation has provided some support to the CAD ratio.
“As the trade deficit in July-August has widened, and will continue to do so, we may expect this deficit to widen and estimate a range of 3-3.5 per cent for the year,” he said.
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The trade deficit was close to $58 billion in July-August.
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On the back of rising exports of computer and business services, net services receipts in the April-June quarter of 2022-23 increased sequentially and also on a year-on-year (y-o-y) basis, RBI data showed.
Services exports registered a y-o-y growth of 35.4 per cent, led by broad-based growth in computer, business, transportation, and travel services.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $25.6 billion, an increase of 22.6 per cent from their level a year ago, the data showed.
Net outgo on the income account, primarily reflecting payments of investment income, increased to $9.3 billion from $7.5 billion a year ago. Net external commercial borrowings to the country recorded an outflow of $3 billion in Q1 of 2022-23 as against an inflow of $0.2 billion a year ago.
Non-resident deposits recorded net inflows of $0.3 billion in Q1 of FY2022-23 as compared with $2.5 billion a year ago.
On a BoP basis, there was an accretion of $4.6 billion to the foreign exchange reserves in the reporting quarter as compared with $31.9 billion in the year-ago quarter, the RBI data showed.
Meanwhile, the country’s external debt, at end-June 2022, was placed at $617.1 billion, recording a decrease of $2.5 billion over its level at end-March 2022.
The external debt to GDP ratio declined to 19.4 per cent at end-June 2022 from 19.9 per cent at end-March 2022, the RBI data showed.
