India’s current account balance is expected to turn positive in the first quarter of the 2022/23 fiscal year, marking the first quarterly surplus in nearly two years thanks to a narrower trade deficit and an increase in services exports. A recent survey of 22 economists showed that the current account balance is likely to record a surplus of $3.3 billion, or 0.4% of gross domestic product (GDP). This would be a significant improvement from the preceding quarter’s deficit of $18.2 billion, or 2.2% of GDP. Forecasts ranged widely, from a deficit of $5.0 billion to a surplus of $7.8 billion.
The news comes as good news for the Indian economy, as a trade deficit has been a drag on its current account balance for the past two years. Upasana Chachra, chief India economist at Morgan Stanley, explained that the merchandise trade deficit was expected to narrow, led by moderating global commodity prices. Additionally, the invisibles trade balance is anticipated to remain steady at previous quarter levels with a pick-up in services exports.
The current account balance is a key indicator of a country’s economic health, measuring the difference between its total exports and total imports of goods, services, and investments. A surplus means that a country is earning more than it spends, indicating a healthy economy.
Prasenjit K. Basu, chief economist at ICICI Securities, explained, With oil prices lower, the trade deficit is likely to shrink, ensuring the current account deficit narrows further. A separate Reuters poll showed that the current account deficit (CAD) was expected to average -1.5% of GDP this fiscal year and -1.8% next, compared with -2.0% in the fiscal year just ended.
Further findings from the survey showed that the balance of payments was forecast in a surplus of $9.8 billion last quarter, compared with $11.1 billion in the previous three-month period. On the capital account front, foreign flows were expected to slow. Overall, the surplus was anticipated to remain largely steady, similar to previous quarters’ levels.
The news of India’s current account surplus is a positive sign for the country’s economic recovery, indicating that its efforts to boost exports and reduce the trade deficit are beginning to pay off. However, economists suggest that sustained efforts and policy changes will be required to maintain this positive trend and enable long-term economic growth.
