Current account deficit shrinks to $18.2 billion in Oct-Dec period

A sharp rise in global commodity prices has led to a deterioration in India's current account position.

India's current account deficit (CAD) dropped sharply to $18.2 billion in the October-December period, data released on March 31 by the Reserve Bank of India (RBI) showed.

At $18.2 billion, CAD for the last quarter of 2022 is sharply lower than July-September's revised figure of $30.9 billion.

The provisional estimate of $36.4 billion for July-September's CAD - which was an all-time high for a quarter - has been revised downwards significantly "due to downward adjustment in Customs data", the RBI said.

"Underlying the lower current account deficit in Q3:2022-23 was a narrowing of merchandise trade deficit to $72.7 billion from $78.3 billion in Q2:2022-23, coupled with robust services and private transfer receipts," the RBI said in a statement.

The price of India's crude oil basket fell to $85.8 per barrel in October-December from $97.9 per barrel the previous quarter, data from the government's Petroleum Planning & Analysis Cell (PPAC) showed.

Crude oil prices are a key consideration for India's current account deficit as India is a huge importer of crude oil.

While India's merchandise trade deficit narrowed sequentially last quarter - although it remained sharply higher compared to the year-ago period - the surplus from India's services trade jumped to $38.7 billion from $27.8 billion in October-December 2021, with services exports posting a growth of nearly 25 percent.

The RBI noted that the services boom was on the back of rising exports of software, business, and travel services.

"With a considerable compression in the average trade deficit in January-February relative to the previous three months, we expect the size of the CAD to recede further to around $10-12 billion in Q4 FY2023," noted Aditi Nayar, ICRA's chief economist.

"Based on this, we project the FY23 CAD at $77-80 billion (2.3 percent of GDP), which is quite contained as compared to the levels that were being feared in mid 2022," Nayar added.

For April-December 2022, the current account deficit was $67.0 billion compared to $25.3 billion in April-December 2021. In percentage terms, the CAD for the first three quarters of 2022-23 is 2.7 percent of GDP as against 1.1 percent in April-December 2021.