INDIA'S CURRENT ACCOUNT deficit (CAD) narrowed to 1% of the gross domestic product (GDP) in Q2FY24 from 3.8% in the corresponding period of FY23, helped by a moderation of merchandise trade deficit, stronger inflows from services trade and higher remittances.
At 1.1%, the CAD was modest in Q1FY24 too.
In absolute terms, the CAD came in at $8.3 trillion in Q2 FY24, lower than $30.9 billion in Q2FY23, and $9.2 billion in Q1FY24.
However, the quarter ended September 2023 saw only a modest accretion of $2.5 billion to the forex reserves on a balance of payment basis, compared with a seven-quarter-high of $24.4 trillion in Q1FY24.
In Q2FY23, there was a reduction of $30.4 billion in the reserves, as the capital account was insufficient to finance the bloated CAD.
Capital account was weak in the quarter ended September 2023, with net inflows of just about $10 billion. In the previous quarter, net capital inflows were a robust $34 billion. The weakness of the capital account in Q2FY24 was caused by a big decline in net FDI and portfolio inflows even as external commercial borrowings rose.
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