India's Q1 current account deficit at 1.1% of GDP

India's current account deficit (CAD) widened sequentially to $9.2 billion—1.1% of gross domestic product—in the first quarter of the ongoing fiscal compared with $1.3 billion in the preceding quarter, data released by the Reserve Bank of India (RBI) showed.

CAD, however, narrowed on a yearly basis in the quarter ended June. In Q1 of FY23, CAD stood at $17.9 billion (2.1% of GDP).

The RBI says the widening of CAD on a quarter-on-quarter basis was primarily due to a higher trade deficit coupled with a lower surplus in net services and a decline in private transfer receipts.

Net services receipts decreased sequentially, primarily due to a decline in computer, travel and business services exports, though remained higher on a year-on-year (y-o-y) basis, it adds.

Private transfer receipts, mainly representing remittances by Indians employed overseas, moderated to $27.1 billion in Q1 FY24 from $28.6 billion in Q4 FY23 but witnessed an increase on a year-on-year basis.

Net outgo on the income account, primarily reflecting payments of investment income, declined to $10.6 billion in the April-June quarter from $12.6 billion in Q4 FY23, though higher than a year ago.

In the financial account, net foreign direct investment decreased to $5.1 billion in Q1 FY24 from $13.4 billion a year ago. Net foreign portfolio investment recorded inflows of $15.7 billion as against net outflows of $14.6 billion in Q1 FY23.

Net external commercial borrowings to India recorded an inflow of $5.6 billion in Q1 FY24 as against an outflow of $2.9 billion a year ago.

Non-resident deposits recorded net inflows of $2.2 billion as compared with $0.3 billion in Q1 FY23.

The central bank also released data on India’s June-end International Investment Position.

Net claims of non-residents in India increased by $12.1 billion during the first quarter and stood at $379.7 billion at the end of June 2023. The rise in net claims of non-residents during the quarter was on account of a rise in foreign-owned financial assets in India ($36.2 billion) when compared with Indian residents’ overseas financial assets ($24.1 billion), the RBI data shows.

An increase in reserve assets of $16.6 billion was the largest contributor to the rise in Indian residents’ foreign assets during April-June 2023, followed by direct investment, loans and trade credit, the banking regulator says.

Inward portfolio investment of $15 billion and foreign direct investment $8.9 billion together accounted for two-thirds of the rise in foreign liabilities of Indian residents, the RBI says.

At the end of June 2023, India's external debt was placed at $629.1 billion, recording an increase of $4.7 billion over its level at the end of March 2023.

The external debt to GDP ratio declined to 18.6% at the end of June 2023 from 18.8% at the end of March 2023. US dollar-denominated debt remained the largest component of India’s external debt, with a share of 54.4% at the end of June 2023, followed by debt denominated in the Indian rupee (30.4%), SDR (5.9%), yen (5.7%), and the euro (3.0%).