CURRENTV ACCOUNT DEFICIT: ECONOMY
NEWS: Current account deficit narrows to $11.2 bn in Q2: RBI
WHAT’S IN THE NEWS?
India's Current Account Deficit (CAD) slightly
decreased to $11.2 billion (1.2% of GDP) in Q2 FY2024-25, with a widening
merchandise trade deficit offset by rising services exports and remittances.
Foreign exchange reserves increased significantly, reflecting improved external
sector stability.
Current Account and External Sector (Q2
FY2024-25):
Current Account Deficit (CAD):
- Marginal
Decline: CAD
in the July-September 2024 quarter stood at $11.2 billion (1.2% of
GDP), slightly lower than $11.3 billion (1.3% of GDP) in the same
quarter of FY2023-24.
- H1
FY2024-25 Trends:
For the first half (April-September 2024), CAD totaled $21.4 billion
(1.2% of GDP), showing a slight increase from $20.2 billion (1.2%
of GDP) in the corresponding period of FY2023-24.
Merchandise Trade Deficit:
- Higher
Deficit: The
merchandise trade deficit widened to $75.3 billion in Q2 FY2024-25,
compared to $64.5 billion a year earlier.
- Reason: The deficit increase reflects higher
imports or stagnation in export growth, which impacts the balance of
payments.
Net Services Receipts:
- Rising
Services Exports:
Net services receipts grew to $44.5 billion from $39.9 billion
in Q2 FY2023-24, driven by robust performance in:
- Computer
services
- Business
services
- Travel
and transportation services
Private Transfer Receipts:
- Increase
in Remittances:
Private transfer receipts, primarily remittances from overseas Indians,
rose to $31.9 billion in Q2 FY2024-25, up from $28.1 billion
in Q2 FY2023-24.
Foreign Direct
Investment (FDI):
- Net
Outflow: A
significant net FDI outflow of $2.2 billion was recorded in Q2
FY2024-25, compared to a smaller outflow of $0.8 billion in the
corresponding quarter of FY2023-24.
Foreign Portfolio Investment (FPI):
- Surge
in Inflows: Net
FPI inflows surged to $19.9 billion in Q2 FY2024-25, up
significantly from $4.9 billion in Q2 FY2023-24.
- Reason: Increased confidence in Indian equity
and debt markets contributed to this growth.
Non-Resident Indian (NRI) Deposits:
- Higher
Inflows: Net
inflows under NRI deposits rose to $6.2 billion in Q2 FY2024-25,
compared to $3.2 billion a year ago.
Foreign Exchange Reserves:
- Accretion
to Reserves:
There was an increase of $18.6 billion in forex reserves (on a
balance of payment basis) in Q2 FY2024-25, significantly higher than the $2.5
billion accretion recorded in Q2 FY2023-24.
Broader Implications:
- CAD
Stability:
Despite global challenges, CAD has remained manageable, aided by strong
services exports and remittances.
- Investment
Dynamics: A
notable divergence in FDI (net outflow) and FPI (high inflow) trends may
reflect differences in long-term and short-term investor sentiment.
- Forex
Reserve Strength:
The significant accretion to forex reserves enhances India’s external
sector resilience.
- Policy
Implications:
Sustained focus on promoting exports and attracting long-term FDI is
crucial for maintaining external sector stability amidst global
uncertainties.
Source: https://indianexpress.com/article/business/current-account-deficit-narrows-to-11-2-bn-in-q2-rbi-9748003/