India's current account deficit narrows to $8.3bn in Q2
India's current account deficit (CAD) experienced a sharp drop to 1% of the nation's gross domestic product (GDP), or $8.3 billion, during the second quarter (July-September) of the 2023-24 fiscal year. The Reserve Bank of India (RBI) revealed this data on December 26, attributing the improvement to a reduced merchandise trade deficit and an increase in services exports.
Merchandise trade deficit and services exports
The CAD's year-on-year contraction in Q2 FY24 resulted from the merchandise trade deficit shrinking to $61.0 billion, down from $78.3 billion in Q2 FY23. Services exports saw a 4.2% growth year-on-year, fueled by a boost in software, business, and travel services exports. The RBI observed that net services receipts rose both sequentially and on a year-on-year basis.
Balance of payments and external commercial borrowings
In the September quarter, India's balance of payments posted a modest surplus of $2.5 billion, a stark contrast to the $30.4 billion deficit recorded a year ago. However, this surplus experienced a sharp decline from the $24.4 billion reported in the June quarter. External commercial borrowings to India registered a net outflow of $1.8 billion in Q2 FY24, compared to a net outflow of $0.5 billion in Q2 FY23.
Net invisible receipts and primary income account
Higher net services receipts primarily drove the increase in net invisible receipts on a year-on-year basis during H1 FY24. The net outflow on the primary income account, which mainly reflects investment income payments, rose to $12.2 billion from $11.8 billion the previous year, as reported by the RBI. The CAD had previously narrowed during the January-March quarter of the prior fiscal year, reaching its lowest point in seven quarters.
