India’s Q4 current account deficit narrows sharply to $1.3 bn

India’s current account deficit (CAD) narrowed sharply to $1.3 billion, 0.2% of GDP, in Q4 FY23 from $16.8 billion ((2% of GDP) in Q3 FY23 and $13.4 billion (1.6% of GDP) in the year-ago period, the Reserve Bank data released today on India’s balance of payments showed.

The sequential decline in CAD in the fourth quarter was mainly on account of a moderation in the trade deficit to $52.6 billion in the quarter from $71.3 billion in the previous quarter, coupled with robust services exports.

The overall net services receipts increased, both sequentially and on a year-on-year (y-o-y) basis, on the back of a rise in net earnings from computer services. Private transfer receipts, mainly representing remittances by Indians employed overseas, also increased to $28.6 billion, up by 20.8% from their level a year ago.

The net outgo on the primary income account, largely reflecting net income payments on foreign investment, increased on a year-on-year basis, while showing a marginal decline sequentially, the RBI data shows.

In the financial account, net foreign direct investment (FDI) at $6.4 billion was higher in Q4 FY23 than $2 billion in Q3, although lower than a year ago ($13.8 billion). The net foreign portfolio investment (FPI) also recorded an outflow of just $1.7 billion -- driven by the equity segment, as compared with an outflow of $15.2 billion during the corresponding period a year ago.

Net external commercial borrowings (ECBs) to India also recorded an inflow of $1.7 billion against an outflow of $2.5 billion during Q3 FY23 and an inflow of $3.3 billion in Q4 FY22. There was also an accretion to the foreign exchange reserves (on a BoP basis) to the tune of $5.6 billion against a depletion of $16 billion in Q4 FY22.

For the full fiscal year, however, the country’s current account balance recorded a deficit of 2% of GDP in 2022-23 as compared with a deficit of 1.2% in 2021-22 as the trade deficit widened to $265.3 billion from $189.5 billion a year ago.

The net invisible receipts were higher in 2022-23 due to an increase in net exports of services and net private transfer receipts, even though net income outgo was higher than a year ago. Net FDI inflows at $28 billion in 2022-23 were also lower than $38.6 billion in 2021-22, while the net FPI recorded an outflow of $5.2 billion in 2022-23 as compared with an outflow of $16.8 billion a year ago.

Net ECBs to India recorded an outflow of $4.1 billion in 2022-23 against an inflow of $7.4 billion in 2021-22. In 2022-23, there was a depletion of US$ 9.1 billion of the foreign exchange reserves (on a BoP basis).