India current account deficit narrows to 2.2% of GDP in Q3

The Reserve Bank of India (RBI) has released data showing that India’s current account deficit, an important measure of the balance of payments, has decreased to $18.2 billion, which is equivalent to 2.2% of the GDP, during the December quarter of the current fiscal year. This decrease can be attributed to the reduction in the merchandise trade deficit, which stood at $30.9 billion, or 3.7% of the GDP in the second quarter of the fiscal year 2022-23.

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Current Trend In the Current Account Deficit (CAD):

As per the RBI, during the second quarter of the previous fiscal year, the Current Account Deficit (CAD) was $30.9 billion, which is equivalent to 3.7% of the GDP. However, in the December quarter of 2021-22, it decreased to $22.2 billion or 2.7% of the GDP.

Reasons of The lower Current Account Deficit (CAD):

• The lower current account deficit in Q3:2022-23 can be attributed to the narrowing of the merchandise trade deficit, which decreased to $72.7 billion from $78.3 billion in Q2:2022-23. Furthermore, the robust services and private transfer receipts have also contributed to this reduction.
• The RBI data reveals that net services receipts showed an increase both sequentially and on a year-on-year basis. This growth can be attributed to a 24.5% increase in services exports on a year-on-year basis, driven by higher exports of software, business, and travel services.
• Private transfer receipts, which represent remittances by Indians employed overseas, amounted to $30.8 billion in the December quarter, reflecting a 31.7% increase from the previous year’s level.
• In the same quarter, net foreign direct investment decreased to $2.1 billion from $4.6 billion in the year-ago period. However, net foreign portfolio investment reported inflows of $4.6 billion in the December quarter, as opposed to an outflow of $5.8 billion in the third quarter of 2021-22. The net outgo from the primary income account, which mainly reflects investment income payments, increased to $12.7 billion from $11.5 billion in the year-ago period.
• Additionally, non-resident deposits showed net inflows of $2.6 billion in the third quarter of the current fiscal year, as compared to net inflows of $1.3 billion in the year-ago period.
• According to the RBI data, India recorded a current account deficit of 2.7% of GDP during the April-December 2022 period, as compared to a deficit of 1.1% during the same period in the previous year.

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