Current account deficit narrows to 1% of GDP at $8.3 bn in Q2: RBI

India's current account deficit narrowed to 1% of the gross domestic product (GDP) at $8.3 billion in the July to September quarter of FY24, as against $9.2 billion in the previous quarter, according to the latest data by the Reserve Bank of India. On a year-on-year basis, the country’s current account deficit narrowed by 3.8% from $30.9 billion in the September quarter last fiscal year.

The lower current account deficit on a year-on-year basis was attributed to the narrowing of the merchandise trade deficit to $61 billion from $78.3 billion in the corresponding period of the previous year.

"Services exports grew by 4.2% on a y-o-y basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a y-o-y basis," the RBI says in a statement.

Meanwhile, net outgo on the primary income account, which primarily reflects payments of investment income, increased by 3.3% year-on-year to $12.2 billion as against $11.8 billion in the same period last year. Private transfer receipts, which mainly represent remittances by Indians employed overseas, amounted to $28.1 billion, witnessing an increase of 2.6% as against $27.5 billion during the corresponding period a year ago. The private transfer receipts in the April to June quarter this year stood at $55.3 billion.

In the financial account, net foreign direct investment witnessed an outflow of $0.3 billion as against an inflow of $6.2 billion in the September quarter of FY23, as per RBI data. Foreign portfolio investment recorded a net inflow of $4.9 billion, lower than $6.5 billion in the September quarter last year. External commercial borrowings to India recorded a net outflow of $1.8 billion in the September quarter of FY24 as against the net outflow of $0.5 billion in the same period last year. Non-resident deposits recorded a net inflow of $3.2 billion in the September quarter, as compared with a net inflow of $2.5 billion in the corresponding period of the previous year. 

"There was an accretion of foreign exchange reserves (on a BoP basis) to the tune of $2.5 billion in Q2:2023-24 as against a depletion of $30.4 billion in Q2:2022-23," the apex bank says.

Notably, in the April to September period (H1), the country’s current account deficit moderated to 1% of GDP from 2.9% in the corresponding period of the previous year, on the back of low merchandise trade. According to the RBI data, on a year-on-year basis, net invisible receipts were higher in the first six months of the current fiscal year mainly on account of higher net services receipts. The net FDI inflow during the H1 of FY24 stood at $4.8 billion as against $19.6 billion in the corresponding period of the previous year.

"Portfolio investment recorded a net inflow of US$ 20.7 billion in H1:2023-24 as against an outflow of $8.1 billion a year ago. In H1:2023-24, there was an accretion of $27.0 billion to the foreign exchange reserves (on a BoP basis)," the apex bank says.