Cad: Current account deficit shrinks to 1% of GDPWORLD NEWS
The improvement in the current account was due to a significant reduction in the goods trade deficit, which dropped from -$78.3 billion in FY23 to -$61 billion in FY24. Within this, the petroleum, oil, and lubricants (POL) segment showed a positive trend, with the deficit shrinking from -$29.5 billion to -$17.9 billion. Another major positive was the services sector, which demonstrated robust growth, with a net positive balance of $40 billion in Q2 FY24 — up from $34.4 billion in the year-ago period.
The deficit numbers are much lower than analysts expected and will be positive for the exchange rate. “India’s current account deficit for Q2 FY24… well below our expectation of around $13 billion, led primarily by a smaller-than-anticipated merchandise trade deficit,” said Aditi Nayar, chief economist at ICRA. The CAD measures the difference between exports of goods, services, and transfers and total imports of the same.
“Following the expansion in the merchandise trade deficit in October 2023, we expect the CAD for the ongoing quarter to widen appreciably to $18-20 billion. Nevertheless, we now foresee the FY24 CAD in a range of 1.5-1.6% of GDP unless commodity prices chart a sharp rebound,” said Nayar.
Secondary income also witnessed an impressive surge, reaching a net positive of $25 billion in Q2 FY24. This positive momentum in services and secondary income has played a major role in mitigating the overall current account deficit.
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