Current account deficit widens to nine-year high on back of greater trade deficit

India’s current account balance recorded a deficit of $36.4 billion (or a nine-year high of 4.4% of GDP) in the quarter ended September, rising from $18.2 billion (2.2% of GDP) in the previous quarter. Deficit for the year-earlier period came in at $9.7 billion (1.3% of GDP), according to data released by the Reserve Bank of India (RBI) on Thursday.

Underlying the current account deficit in Q2 was the widening of the merchandise trade deficit to $83.5 billion from $63.0 billion in the April-June quarter and an increase in net outgo under investment income, the RBi said.

During the first half-year ended September, India recorded a current account deficit of 3.3% of GDP, again on the back of a sharp increase in the merchandise trade deficit, compared with 0.2% a year earlier.

Net invisible receipts were higher in the first half this year on a year-on-year (y-o-y) basis on account of higher net receipts of services and private transfers.

Services exports during the second quarter grew 30.2% y-o-y on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a y-o-y basis.

Net outgo from the primary income account, mainly reflecting payments of investment income in Q2 increased to $12 billion from $9.8 billion a year earlier.

Private transfer receipts, mainly representing remittances by Indians employed overseas, .

In the financial account, net foreign direct investment decreased to $6.4 billion from $8.7 billion.

Net foreign portfolio investment in Q2 recorded higher inflows of $6.5 billion compared with $3.9 billion a year earlier.

Net external commercial borrowings to India clocked an outflow of $0.4 billion compared with an inflow of $4.3 billion.

Non-resident deposits in Q2 recorded net inflows of $2.5 billion as against net outflows of $0.8 billion a year earlier, the data showed.

There was a depletion of foreign exchange reserves (on a balance of payment basis) to the tune of $30.4 billion as against accretion of $31.2 billion.

The current account deficit for the first quarter of this fiscal has been revised downwards from $23.9 billion (2.8% of GDP) due to downward adjustment in Customs data, the RBI said.

Net FDI inflows were almost flat at $20 billion in the first half compared with $20.3 billion a year earlier.

Portfolio investment recorded a net outflow of $8.1 billion in the first half as against an inflow of $4.3 billion.

In the first six months ended September, there was a depletion of $25.8 billion to the foreign exchange reserves (on a BoP basis).