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India’s Current Account Deficit Falls To $18.2 Bn In Oct-Dec

The Reserve Bank of India (RBI) reported on Friday that India’s current account deficit (CAD) fell significantly to USD 18.2 billion in October-December.

The CAD for the fourth quarter of 2022 is USD 18.2 billion, a significant decrease from the revised USD 30.9 billion for July-September.

The provisional estimate of USD 36.4 billion for July-September CAD, which was an all-time high for a quarter, has been substantially revised downwards “due to downward adjustment in Customs data,” according to the RBI.

“A narrowing of the merchandise trade deficit to USD 72.7 billion from USD 78.3 billion in Q2:2022-23, coupled with robust services and private transfer receipts,” the RBI said in a statement.

According to data from the government’s Petroleum Planning & Analysis Cell (PPAC), the price of India’s crude oil basket dropped to USD 85.8 per barrel in October-December from USD 97.9 per barrel the previous quarter.

Crude oil prices are an important factor for India’s current account deficit because the country is a large importer of crude oil.

While India’s merchandise trade deficit narrowed sequentially last quarter, it remained significantly higher year on year, the surplus from India’s services trade increased to USD 38.7 billion from USD 27.8 billion in October-December 2021, with services exports rising by nearly 25 per cent.

According to the RBI, the services boom is being driven by increasing exports of software, business, and travel services.

“With a significant reduction in the average trade deficit in January-February relative to the previous three months, we expect the CAD to shrink further to around USD 10-12 billion in Q4 FY2023,” said Aditi Nayar, chief economist at ICRA.

“Based on this, we project FY23 CAD at USD 77-80 billion (2.3 per cent of GDP), which is quite contained in comparison to the levels that were feared in mid-2022,” Nayar added.

The current account imbalance for April-December 2022 was USD 67.0 billion, up from USD 25.3 billion in April-December 2021. The CAD for the first three quarters of 2022-23 is 2.7 per cent of GDP, up from 1.1 per cent in April-December 2021.

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