India’s current account deficit (CAD) reduced significantly to $1.3 billion in the fourth quarter of the 2022-23 fiscal year. The decline in CAD was due to a reduction in the trade deficit and a rise in service exports. The CAD accounted for 0.2% of the GDP, while the previous quarter had a CAD of $16.8 billion (2% of GDP).
The Reserve Bank of India’s balance of payments notification acknowledged that the decrease in CAD was primarily due to the reduction of the trade deficit. It dropped from $71.3 billion in Q3 to $52.6 billion in Q4 of 2022-23.
Net services receipts also increased significantly, mainly because of computer services. Private transfer receipts, mostly from overseas Indians, rose by 20.8% from the previous year and reached $28.6 billion.
Meanwhile, the primary income account reflected an increase in net payment on foreign investments compared to the prior year with a slight decline sequentially.
India’s net foreign direct investment increased from $2 billion in Q3 to $6.4 billion in Q4 of 2022-23. However, it is still lower than the $13.8 billion recorded in the same quarter a year ago. Foreign exchange reserves also improved by $5.6 billion on a balance of payments basis in Q4, and there was no depletion like last year’s Q4.
During the full fiscal year 2022-23, the current account balance had a deficit of 2% of GDP compared to 1.2% in FY22. The increase in trade deficit rose from $189.5 billion to $265.3 billion over the year, which contributed to the wider gap. Net FDI inflows amounted to $28 billion in 2022-23, lower than $38.6 billion in 2021-22. Foreign exchange reserves depleted by $9.1 billion on a balance of payments basis.
The news is a positive sign for India’s economy, which has been hit hard by the COVID-19 pandemic. India has made significant progress in reducing CAD in the past year with a focus on exports and reducing imports. The government is working to strengthen the economy further by increasing foreign investment and reducing the trade and current account deficits.
