India’s current account deficit widened to 1.1 percent or $9.7 billion in the first quarter of the year compared with 0.5 percent surplus in the last quarter (Q4) of the previous year (FY24) as the merchandise trade deficit rose during April-June period.
Merchandise imports at $176.1 billion were higher than $111 billion in exports in the first quarter of the fiscal, leaving a deficit of $65 billion compared with $56 billion in Q1FY24.
"Both oil and gold were responsible for this phenomenon as well as increase in other non-oil imports," said Madan Sabnavis, chief economist, Bank of Baroda.
Services made up for the losses in merchandise trade and kept CAD from widening further.
"Net services receipts increased on a y-o-y basis to $39.7 billion in Q1:2024-25 from $35.1 billion a year ago. Services exports have risen on a y-o-y basis across major categories such as computer services, business services, travel services and transportation services," RBI said.
Experts indicate that current account deficit is likely to be higher at above 1 percent in FY25 compared with 0.7 percent in the previous year.
" The CAD was marginally higher at 1.1 percent as against 1 percent of GDP last year. This is fairly comfortable and we may expect the deficit to be around 1.5 percent for the year based on these trends persisting for the full year," said Madan Sabnavis, chief economist, Bank of Baroda.
But they point to higher CAD in the current quarter.
"Looking ahead, the spike in gold imports in August 2024 following the custom's duty reduction is likely to bloat this quarter's current account deficit considerably to nearly 2 percent of GDP. With gold imports unlikely to sustain this surge in the coming months, we expect the monthly merchandise trade deficit figures to ease. We foresee India's current account deficit to average 1.1-1.2% of GDP in FY25," said Aditi Nayar, chief economist, Icra.
On the capital account, net direct investment at $6.1 billion was at a five quarter high, but there was hardly any change in portfolio investments. NRI deposits were almost double that of the previous year's first quarter at $4 billion, but External Commercial Borrowings were lower.
The situation on the capital front is likely to improve according to economists.
"With the Federal Reserve beginning the monetary easing, the capital flows are expected to improve for India and other emerging economies. The incoming data for September 2024 is a reflection of the same with FPI flows in Indian equities touching a nine-month high. The FDI flows are also expected to improve further with strong domestic fundamentals of the Indian economy," said Paras Jasrai, senior analyst, Ind-Ra.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
