Current account deficit widens to a 9-year high at 4.4% of GDP

"Underlying the current account deficit in Q2:2022-23 was the widening of the merchandise trade deficit to $83.5 billion from $63.0 billion in Q1:2022-23 and an increase in net outgo under investment income," the RBI said in a statement.

"While it was expected that India's current account deficit would widen to an all time high in July-September, the size of the deficit exceeded even the upper end of our forecast range of $31-34 billion," noted Aditi Nayar, chief economist at ICRA.

For the first half of 2022-23, the current account deficit is $54.5 billion, more than 15 times higher than the $3.1 billion recorded in the first six months of 2021-22.

As a percentage of GDP, India's July-September CAD is 4.4 percent as against 2.2 percent in April-June and 1.3 percent in July-September 2021. For the half-year ended September, the deficit is 3.3 percent of GDP, sharply higher than the 0.2 percent in April-September 2021.

A sharp deterioration in the CAD was expected, given the rise in global commodity prices following Russia's invasion of Ukraine in late February. This resulted in India's import bill ballooning to nearly $200 billion in July-September.

Meanwhile, on the services trade front, India had a surplus of $34.4 billion last quarter, up from $25.6 billion in July-September 2021.

"Services exports reported a growth of 30.2 percent on a year-on-year basis on the back of rising exports of software, business and travel services," the RBI said.

Even with the merchandise trade deficit moderating in recent months - it hit a seven-month low of $23.89 billion in November - ICRA's Nayar sees the FY23 current account deficit at an "unpalatable" $115 billion.

"Going ahead, it remains uncertain whether the negative impact of weak global demand on exports will outweigh the softening of imports related to the correction in commodity prices," she said.