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India’s current account deficit widens to 2.8% of GDP in Q1, highest in nearly 4 years

Mumbai: India’s current account deficit widened in the April-June quarter, driven by soaring global commodity prices that pushed up the trade deficit, while large capital outflows also hurt, Reserve Bank of India (RBI) data showed on Thursday.

In absolute terms, the current account deficit (CAD) stood at $23.90 billion in the first quarter of fiscal year 2022/23, its highest since the December quarter of 2012. However, as a percentage of GDP, the CAD was at 2.8%, its highest in nearly four years.

The CAD stood at $13.4 billion, or 1.5% of GDP, in the preceding January-March quarter, while there had been a surplus of $6.6 billion, or 0.9% of GDP, in the same quarter a year earlier, the release showed.

The median forecast in a Sept. 9-15 Reuters poll of 18 economists was for a CAD of $30.5 billion, or 3.6% of GDP.

“While the trade deficit has widened, a lot of support has come from the invisibles account with both software and remittances witnessing higher net inflows,” said Madan Sabnavis, chief economist at Bank of Baroda.

Private transfer receipts, mainly representing remittances by Indians employed overseas, rose 22.6% to $25.6 billion from a year earlier, the RBI said.

The country’s balance of payments recorded a surplus of $4.6 billion compared to a deficit of $16 billion in the preceding quarter and a surplus of $31.9 billion in the same quarter a year earlier.

India’s merchandise trade deficit in August widened to $27.98 billion from $11.71 billion a year earlier, revised data released by the government earlier this month showed.

Another key reason for the rise in the CAD was an increase in net outgoing investment income payments, which increased to $9.3 billion from $7.5 billion a year ago, the release said.

“CAD will certainly widen further despite the moderation in crude oil prices,” said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.

“India can attract more capital inflows if and only if it shows an improvement in growth prospects. Going by the underlying trends, India’s CAD may be 3.5-3.7% of GDP in FY23,” she added.-Reuters

Also read: India’s trade deficit hit high of $31 billion in July — and it isn’t easing soon


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