India's current account deficit narrowed to 1.2% of GDP in Q3

News Excerpt

India's current account deficit narrowed to $10.5 billion or 1.2% of GDP in the October-December quarter from $11.4 billion in the previous quarter.

About RBI’s Data

  • Reasons for narrowing CAD:
    • The rise in net services receipts more than compensated for a slight rise in merchandise trade deficit in Q3 FY24, thus helping cushion the CAD.
    • Services exports grew by 5.2% year-on-year (Y-o-Y) in Q3 FY24, driven by rising exports of software, business, and travel services.
    • Positive foreign direct investment (FDI) and foreign portfolio investment (FPI) flows helped keep the balance of payments (BoP) in surplus, contributing to manageable current account financing needs.
  • Comparison with previous years Quarters:
    • The merchandise trade deficit was at $71.6 billion in Q3 FY24 compared to $71.3 billion a year ago.
    • Net services receipts rose to $45 billion in Q3 FY24 from $38.7 billion in Q3 of the previous year.
    • Primary Income Account: The net outgo from the primary income account, mainly reflecting payments of investment income, increased to $13.2 billion in Q3 FY24 from $12.7 billion a year ago.
    • Private transfer receipts, mainly remittances from Indians employed overseas, amounted to $31.4 billion, showing a 2.1% increase Y-o-Y.
    • Balance of Payments (BoP) Position for Q3 FY24, there was an accretion of $6 billion to the reserves, lower than $11.1 billion in the year-ago period.
    • CAD Moderation for April-December 2023, the CAD moderated to 1.2% of GDP, against 2.6% of GDP in the same period of the previous year, primarily due to a lower merchandise trade deficit.
    • BoP Position for April-December 2023: There was an accretion of $32.9 billion to the reserves, compared to depletion of $14.7 billion in the year-ago period.
  • Economists predict further narrowing of CAD for FY24, with estimates suggesting a full-year CAD of -0.8% of GDP, compared to earlier forecasts.

About Current Account Deficit (CAD):

  • Current account deficit or CAD is the difference between the money coming in due to exports and the money going out due to imports. 
  • Current account deficit (or surplus) calculates the difference between the money obtained and sent from the country on the trade of goods and services as well as the movement of capital from domestic production factors abroad.
  • The CAD of a nation maintains a record of the country's transactions with other nations in terms of trade in goods and services, net profits on foreign investments, and net transfer of payments over time (remittances). 
  • This current account goes into a deficit when money sent out exceeds that coming inward.

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