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India’s Current Account Deficit Widened

India’s current account deficit, an indicator of the balance of payment position, in the first quarter of the fiscal widened to 2.8 per cent of GDP at USD 23.9 billion, mainly on account of a higher trade deficit. The current account had a surplus of USD 6.6 billion, equivalent to 0.9 per cent of GDP, in the first quarter (April-June) of 2021-22.

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Current Account Deficit:

As per the data released by the Reserve Bank on India’s Balance of Payments during the First Quarter (April-June) of 2022-23, the current account balance recorded a deficit of USD 23.9 billion (2.8 per cent of GDP) in the first quarter, up from USD 13.4 billion (1.5 per cent of GDP) in January-March period of the last fiscal.

What Is a Current Account Deficit:

The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account. The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments (BOP).

What The RBI Said:

“Underlying the current account deficit in Q1:2022-23 was the widening of the merchandise trade deficit to USD 68.6 billion from USD 54.5 billion in Q4:2021-22 and an increase in net outgo of investment income payments,” the RBI said. It also said net services receipts increased, both sequentially and on a year-on-year (y-o-y) basis, on the back of rising exports of computer and business services. The current account registers the export and imports of goods and services, and international transfers.

Foreign Inflow:

As per the RBI data, private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to USD 25.6 billion, an increase of 22.6 per cent from their level a year ago. In the financial account, net foreign direct investment increased to USD 13.6 billion from USD 11.6 billion a year ago.

Net foreign portfolio investment recorded outflows of USD 14.6 billion against net inflows of USD 0.4 billion during the first quarter of 2021-22. The RBI further said non-resident deposits recorded net inflows of USD 0.3 billion compared to USD 2.5 billion in the April-June quarter of 2021-22. There was an accretion of USD 4.6 billion to the foreign exchange reserves (on a BoP basis) in the April-June quarter of 2022-23 compared to USD 31.9 billion in the year-ago period.

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