Mumbai, 26 March

India's current account deficit narrowed to USD 10.5 billion or 1.2 per cent of GDP in the October-December quarter as against USD 11.4 billion or 1.3 per cent in the preceding three months ending September, the Reserve Bank said on Tuesday.

When compared to the year-ago period, the narrowing in the CAD was much sharper when compared to USD 16.8 billion or 2 per cent for the October-December 2022 period, the Reserve Bank said in the data on balance of payments.

For the first nine months of the fiscal, CAD has moderated to 1.2 per cent of GDP from 2.6 per cent of GDP in the corresponding period a year ago on the back of a lower merchandise trade deficit, the RBI said.

Current account balances are the sum total of the entire inflow and outflow of foreign funds in the economy, and are generally taken as a key illustrator of a country's external strength. A widening in the deficit in the past had led to rupee depreciation and also actions by rating agencies on the sovereign rating.

Analysts at foreign brokerage Barclays said the CAD narrowed in the December quarter despite a wider merchandise trade deficit, cushioned by a record high services trade surplus and secondary income. The CAD will narrow further to 1 per cent of GDP for FY24 and the country's inclusion in global bond indices will improve the number in FY25, they added. The merchandise trade deficit at USD 71.6 billion for the December quarter was marginally higher than USD 71.3 billion in the year-ago period, the RBI said.

Services exports grew by 5.2 per cent on a year-on-year basis on the back of rising exports of software, business and travel services, the RBI said, adding that net services receipts increased to USD 45 billion from USD 38.7 billion in the year-ago period to help cushion the current account deficit.

Private transfer receipts, mainly representing remittances by Indians employed overseas, came at USD 31.4 billion, which is an increase of 2.1 per cent over the level during the year ago period, the RBI said.

Foreign direct investment recorded a net inflow of USD 4.2 billion as compared to a net inflow of USD 2 billion in the December quarter last year, while the foreign portfolio investment recorded a net inflow of USD 12 billion, which is much higher than the USD 4.6 billion in the year-ago period.

External commercial borrowings recorded a net outflow of USD 2.6 billion in the December quarter of FY24, which was marginally wider than the net outflow of USD 2.5 billion in the year ago period. Non-resident deposits recorded a higher net inflow of USD 3.9 billion than USD 2.6 billion a year ago.

There was an accretion of foreign exchange reserves (on a BoP basis) to the tune of USD 6 billion as compared to an accretion of USD 11.1 billion in the year-ago period. Domestic rating agency India Ratings and Research said the CAD came as per its expectations, and added that the number will further trim in the March quarter.