MC Graphixstory: Narrowing current account deficit to bolster economy, reduce pressure on rupee

The current account deficit (CAD) for H1 of FY24 dropped to USD 17.5 billion from USD 48.8 billion during the same period in the previous year, declining by 64.1 per cent

India's current account deficit (CAD) narrowed to $8.3 billion in the second quarter of 2023-24, according to data released on December 26 by the Reserve Bank of India (RBI).

As per the data, the CAD in July-September amounted to 1 percent of India's GDP.

The CAD in April-June 2023 was $9.2 billion, or 1.1 percent of the GDP. In July-September 2022, the deficit stood at a huge $30.9 billion, or 3.8 percent of GDP.

The current account balance is the difference between the value of exports of goods and services and the value of imports of goods and services, according to the International Monetary Fund (IMF).

A deficit means that India is importing more goods and services than it is exporting. The current account also includes net income, such as interest and dividends, and transfers from abroad such as foreign aid, which are usually a small fraction of the total.

The direct impact of CAD is on the demand for foreign exchange, which leads to the depreciation of domestic currency and increases dependence on foreign borrowings and foreign investment.

India typically runs a current account deficit as it is a developing economy that relies on imports of several commodities like crude oil.

The current account deficit (CAD) for H1 of FY24 dropped to $17.5 billion from $48.8 billion during the same period in the previous year, declining by 64.1 percent.

Broad-based improvements in both merchandise trade and invisibles led to this improvement.

India’s exports have been showing remarkable performance, logging record-high levels since FY22, with merchandise exports rising by more than 50 percent and services exports by 120 percent over the past decade (FY13 to FY23). The highest-ever merchandise export of $451.1 billion was achieved in FY23.

The pick-up in total exports (merchandise plus services) has been evident since FY22, when it reached $683.7 billion, followed by $781.4 billion in FY23.

India is the largest recipient of worker remittances in the world, receiving $125 billion in the year 2023.