CAD widens marginally on widening trade deficit

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India’s current account deficit widened marginally to 1.1 percent of GDP in the June quarter compared to 1 percent of GDP in the same period a year ago due to widening trade deficit according to the figures released by the Reserve Bank of India.

Overall balance of payments ended in a lower surplus of $5.2 billion compared to $24 billion in the previous comparable quarter as capital flows slowed during the quarter.

Current account which record the country’s imports and exports of goods and services ended in a deficit of $ 9.7 billion or 1.1 per cent of GDP for the quarter ended June 2024-25 compared to $ 8.9 billion or1.0 percent of GDP in June 2023 quarter and against a surplus of $ 4.6 billion or 0.5 per cent of GDP in the March 2024 quarter.

The central bank said that the widening of trade deficit was primarily due to a rise in merchandise trade deficit to $ 65.1 billion during the quarter from $ 56.7 billion a year ago.

Net services receipts increased to $ 39.7 billion in the June quarter from $ 35.1 billion a year ago. Services exports have risen across major categories such as computer services, business services, travel services and transportation services, RBI said.


“While the current account deficit expectedly widened in Q1 FY2025, it undershot our forecast primarily on account of secondary income” said Aditi Nayar, head of research and outreach at ratings firm Icra. ” Looking ahead, the spike in gold imports in August 2024 following the custom’s duty reduction is likely to bloat this quarter’s current account deficit considerably to nearly 2.0% of GDP. With gold imports unlikely to sustain this surge in the coming months, we expect the monthly merchandise trade deficit figures to ease. We foresee India’s current account deficit to average 1.1-1.2% of GDP in FY2025.”In the capital account or financial account, net foreign direct investment inflows increased to $ 6.3 billion in April-June 2024 $ 4.7 billion in the corresponding period of 2023-24, while foreign portfolio investment moderated to $ 0.9 billion from $ 15.7 billion in Q1:2023-24.Net inflows under external commercial borrowings (ECBs) to India amounted to $ 1.8 billion during April-June 2024, lower than $ 5.6 billion in the corresponding period a year ago. Non-resident deposits (NRI deposits) on the other hand recorded net inflows of $ 4.0 billion, higher than $ 2.2 billion a year ago.

The capital account ended in a lower surplus of $14,4 billion this year compared to $33.8 billion a year ago.



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