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India’s current account deficit (CAD) experienced a significant sevenfold increase, reaching $9.2 billion during the April-June quarter, according to data released by the Reserve Bank of India (RBI) on Thursday. This surge is in contrast to the previous quarter when the CAD stood at $1.3 billion.
The RBI attributed the widening CAD on a quarter-on-quarter basis to a combination of factors, including a higher trade deficit, a reduced surplus in net services, and a decline in private transfer receipts. The decrease in net services receipts was mainly due to reduced exports in categories such as computer services, travel services, and business services.
During the quarter, the merchandise trade deficit expanded to $56.6 billion, up from $52.6 billion in the preceding quarter, but still lower than the year-ago deficit of $63.1 billion. Private transfer receipts, primarily consisting of remittances from Indians working overseas, decreased to $27.1 billion from $28.6 billion.
For the April-June quarter of the fiscal year 2023-24, the CAD amounted to 1.1 per cent of GDP, a significant increase compared to the previous quarter when it was only 0.2 per cent of GDP. In the same quarter of the previous year (April-June 2022), the CAD stood at $17.9 billion, equivalent to 2.1 per cent of GDP.
Economists, including Madhavi Arora, lead economist at Emkay Global Financial Services, anticipate a substantial widening of the CAD in the July-September quarter. Factors contributing to this widening include higher oil prices, increased core imports, and a further slowdown in services exports. Arora projected that the CAD/GDP ratio for July-September 2023 could range from 2.4 per cent to 2.6 per cent.
Aditi Nayar, chief economist at ICRA, also predicted a widening of the CAD in the July-September quarter, with estimates ranging from $19 billion to $21 billion, equivalent to 2.3 per cent of GDP.
