India’s current account deficit (CAD) declined to a two-quarter low of $18.2 billion in Q3 FY23 from $30.9 billion in the previous quarter, and $22.2 billion a year ago. CAD for FY22 was at $38.77 billion.

The Q3 CAD was equivalent to 2.2 per cent of India’s GDP as against 3.7 per cent in the previous quarter and 2.7 per cent in the year-ago period, data released by RBI showed.

Underlying the lower CAD in Q3 was a narrowing of the merchandise trade deficit to $72.7 billion from $78.3 billion in Q2, coupled with robust services and private transfer receipts, the central bank said.

“Merchandise exports recorded a contraction of 3 per cent YoY after a gap of seven quarters, coming in at $105.61 billion in Q3. Even the merchandise imports slowed to a three-quarter low of $178.33 billion on the back of moderation in international prices of key imported commodities like crude oil, fertilzers, etc,” Sunil Sinha, Principal Economist, India Ratings and Research said.

Nevertheless, the goods imports were still 5.7 per cent higher than the year ago, he added.

For the nine-month period ended December 2022, the CAD was at $67.0 billion, 2.6 times more than the $25.3 billion in the previous year. It was equivalent to 2.7 per cent of GDP, more than double the 1.1 per cent in the year ago period, mainly owing to the sharp increase in merchandise trade deficit, RBI said.

Also read: India has sufficient forex reserves to finance CAD and intervene in forex market: Eco Survey

Services exports

On the other hand, services exports grew 24.5 per cent YoY on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and annually to $38.7 billion in Q3.

The surplus in services was up by 39.2 per cent YoY, a 45-quarter high, led by a record high surplus in software and business services at $33.54 billion and $6.07 billion, respectively.

The seasonal rush combined with complete relaxation of Covid-19 restrictions internationally resulted in higher influx of foreign travellers, leading to surplus in travel services of $1.21 billion for the first time in the post Covid-19 period, experts said.

Private transfer receipts, mainly representing remittances by Indians employed overseas, also increased 31.7 per cent from a year ago to $30.8 billion in Q3.

The quarter also saw net FPI inflows of $4.6 billion against outflows of $5.8 billion a year ago and NRI deposit inflows of $2.6 billion, higher than $1.3 billion. However, net external commercial borrowings recorded outflows of $2.6 billion, higher than $0.4 billion, whereas net FDI decreased to $2.1 billion from $4.6 billion a year ago.

The CAD was more than compensated by a surge in capital account flows which surged to a five-quarter high of 3.6 per cent of GDP at $30.18 billion. As a result, foreign exchange reserves increased by $11.07 billion, Sinha said.

“With the sharp deceleration in commodity prices due to global slowdown and resilient remittances and services surplus, the current account is expected to record a marginal surplus in 4QFY23. Overall, the current account deficit is expected to come in under 3 per cent of GDP in FY23,” he said.