India’s current account deficit narrows to $10.5 billion in Q3 on higher services exports

India’s current account deficit (CAD) – the difference between the total money sent abroad and the cumulative net inflows – narrowed to $10.5 billion or 1.2% of the gross domestic product (GDP) in Q3 (October-December) of fiscal year 2023-24, the Reserve Bank of India (RBI) said.

This is lower as compared to a deficit of $16.8 billion or 2% of the GDP in the year-ago period, and $11.4 billion or 1.3% of the GDP in the preceding quarter of June-September 2023, the central bank said in a release issued on Tuesday, March 26.

The decline in the CAD was on account of higher services exports, which grew by 5.2% year-on-year to $87.8 billion in the third quarter. The growth was on the “back of rising exports of software, business and travel services”, the RBI said.

Meanwhile, the merchandise trade deficit stood at $71.6 billion during the period under review, which was marginally higher than $71.3 billion during Q3 FY23.

Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $13.2 billion from $12.7 billion a year ago.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $31.4 billion, an increase of 2.1% over their level during the corresponding period a year ago.

Foreign portfolio investment recorded a net inflow of $12 billion, higher than $4.6 billion during Q3 FY23.

External commercial borrowings to India recorded a net outflow of $2.6 billion in Q3 FY24, as compared with a net outflow of $2.5 billion a year ago.

The RBI also reported a surge in foreign direct investment (FDI) in the October-December period, with the net inflow coming in at $4.2 billion. This is more than double as compared with a net inflow of $2 in Q3 FY23.

However, the net FDI inflow during the April-December 2023 period was lower, at $8.5 billion, as compared to the net inflow of $21.6 billion during April-December 2022.