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HomeBusinessCurrent account deficit narrows to $10.5 billion in Q3 from $11.4 billion

Current account deficit narrows to $10.5 billion in Q3 from $11.4 billion

MUMBAI: The

current account deficit

narrowed to $10.5 billion, or 1.2% of the country’s gross domestic product, in

Q3 FY24

from $11.4 billion (1.3% of GDP) in Q2 FY24. The deficit was sharply lower than the $16.8 billion – 2% of

GDP

– recorded in the year-ago period. Analysts are now forecasting that the CAD will narrow further to 1% of GDP by the end of the fiscal year.

A lower CAD is positive for the rupee, and many economists are forecasting a strengthening of the

rupee

in the coming weeks. Ahead of RBI releasing the balance of payments data on Tuesday, the rupee recovered to 83.29 from its all-time low of 83.43 on Friday due to the dollar weakening in international markets.
The deficit in the trade of petroleum and oil products widened to $25.8 billion from $17.9 billion in the quarter before due to a rise in the oil import bill. However, the deficit was lower than the $29.3 billion a year ago.
The higher oil trade deficit resulted in the goods trade account registering a deficit of $71.6 billion in Q3 FY24, up from $64.3 billion in Q2 FY24. Services exports grew by 5.2% year-on-year, on the back of rising exports of software, business, and travel services. Besides service exports, softer international commodity prices also prevented the trade deficit from worsening.

Private transfer receipts, which reflect remittances by non-resident Indians, increased 2.1% on-year to $31.4 billion.
The capital account surplus widened materially quarter-on-quarter, rising $4.3 billion to $17.4 billion, with improvements in capital flows due to foreign direct investment, foreign portfolio investors and banking capital flows. This resulted in a balance of payment surplus of $6 billion in Q3 – up from $2.5 billion in the preceding quarter.

“We maintain our forecasts for the annual current account at $35 billion (1% of GDP) in FY24, but see a downside to this number: our monthly tracker for Q4 FY24 (Jan-Feb) is currently running a current account surplus, as the gap between customs merchandise trade deficit and services trade surplus has

narrowed

in Q3 FY24,” said Rahul Bajoria, an economist with Barclays.