India's CAD narrows to 1.2% of GDP in Q3 due to higher service costs

India's current account deficit (CAD) narrowed to 1.2 per cent of GDP in the October-December quarter largely due to higher service exports, the Reserve Bank of India said on Tuesday.

The current account deficit stood at $10.5 billion in the third quarter of financial year 2023-24 compared with $11.4 billion or 1.3 per cent of GDP in the preceding quarter.

The merchandise trade deficit at $ 71.6 billion was marginally higher than $ 71.3 billion during Q3:2022-23.


Services exports grew by 5.2 per cent on a y-o-y basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and from a year ago that helped cushion the current account deficit, said the central bank.

Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $13.2 billion from $12.7 billion a year ago.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $ 31.4 billion, an increase of 2.1 per cent over their level during the corresponding period a year ago.

In the financial account, foreign direct investment recorded a net inflow of $ 4.2 billion as compared with a net inflow of $ 2.0 billion in Q3:2022-23.

During the third quarter of 2023-2024, there was an increase in foreign portfolio investment, with a net influx of $12.0 billion, surpassing the $4.6 billion recorded in the same period of the previous fiscal year.

In the third quarter of 2023-24, external commercial borrowings directed towards India experienced a net deficit of $2.6 billion, slightly higher than the net outflow of $2.5 billion seen in the corresponding period one year prior.

Non-resident deposits recorded a higher net inflow of $ 3.9 billion than $ 2.6 billion a year ago.

There was an accretion of foreign exchange reserves (on a BoP basis) to the tune of $ 6.0 billion in Q3:2023-24 as compared with an accretion of $ 11.1 billion a year ago.

The current account deficit as a percentage of GDP for the second quarter of 2023-24 was revised upwards to 1.3 percent from the previous estimate of 1.0 percent. This revision was attributed to an upward adjustment in customs data related to merchandise imports.