India’s current account deficit (CAD) has narrowed in the January-March quarter of FY23 due to moderation in trade deficit and an increase in services exports, according to data from the Reserve Bank of India. The CAD decreased to $1.3 billion, down from $16.8 billion in the previous quarter, and $13.4 billion a year ago. The decrease was primarily due to the moderation of the trade deficit and increased services exports, including net earnings from computer services.
This news is significant as the CAD is a key indicator of a country’s balance of payment. The CAD signifies the sum of a nation’s net exports, net factor income, and net transfer payments. India’s trade deficit has been a cause for concern for the Indian economy in recent times, with rising imports and muted exports causing the CAD to rise.
The decline in CAD in FY23 Q4 comes as a positive development, indicating India’s efforts to boost exports are paying off. The expansion of the services sector and an increase in IT exports have been the driving forces behind India’s lower CAD. Additionally, there has been an accretion to the foreign exchange reserves, up from depletion recorded last year.
However, the overall CAD for fiscal year 2022-23 recorded a deficit of 2% of GDP due to the widening trade deficit. The deficit increased to $265.3 billion compared to $189.5 billion a year ago, prompting India to step up its export efforts.
Despite the overall deficit, the decline in CAD in the latest quarter is a positive development for India’s economy. It demonstrates the country’s potential to improve its balance of payment through a focus on buoying exports. The narrowing CAD is expected to encourage investors, leading to improved market sentiment and a boost to economic growth.
