The Current Account Deficit (CAD) for October-December quarter (Q3) of current fiscal 2023-24 is expected to have surged to 1.2 per cent of GDP (Gross Domestic Products), India Ratings & Research (Ind-Ra) estimated on Tuesday. One reason could be a fall in exports, while imports have not seen a sharp fall.

The deficit was 1 per cent during the July-September quarter (Q2) of FY24. If it moved up to 1.2 per cent in Q3, it would be one year high. 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.

“Ind-Ra expects the Current Account Balance to have been in a deficit of around $11 billion (1.2 per cent of GDP) in 3QFY24. This would be marginally higher than a deficit of 1 per cent of GDP in the previous quarter and at a year’s high (3QFY23: $16.8 billion, 2 per cent of GDP),” the agency said in a statement.

Further, it said, it expects the current account deficit to dip in 4QFY24. Although the global economic environment remains uncertain, there are nascent signs of a pick-up in economic activity. The global manufacturing PMI expanded for the first time in 17 months in February 2024 (50.3). The expansion was stronger in the US and emerging economies (barring the European region). 

The agency expects the merchandise exports to increase to around $117 billion in 4QFY24, up 2 per cent yoy. This would be a seven-quarter high. Likewise, the merchandise imports are expected to touch a six-quarter high of around $180 billion in 4QFY24, up 8 per cent yoy. Overall, “Ind-Ra expects the goods trade deficit to moderate to $64 billion in 4QFY24,” it said.

Services trade surplus

Services demand has remained healthy despite global headwinds. The trend continues to be strong with the latest high-frequency indicators. The global services PMI touched a seven-month high of 52.4 in February 2024, with the push emanating from both developed and emerging markets. Thus, “Ind-Ra opines the services trade surplus to sustain the record-breaking run and stand at a fresh high of $47 billion in 4QFY24,” the agency said.

Last month, RBI Governor Shaktikanta Das said that CAD for 2023-24 and 2024-25 would be eminently manageable. Further, he said that going ahead, the net balance under services and remittances would remain in large surplus, partly offsetting the trade deficit. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $ 28.1 billion, an increase of 2.6 per cent from their level during the corresponding period a year ago. He also said, the net balance under services and remittances would remain in large surplus, partly offsetting the trade deficit. 

“India’s services exports remained resilient in October-December 2023, driven by software, business and travel services. Moreover, with around 10.2 per cent share in world telecommunications, computer and information services exports, India is a significant player in the world software business,” Das said in his statement while adding that according to the World Bank, with an estimated $135 billion in inward remittances in 2024, India would remain the largest recipient of remittances globally.