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India’s current account deficit continued to widen in the July-September quarter amid a rising merchandise trade deficit.
The current account deficit increased to $36.4 billion, or 4.4% of the GDP, in Q2 FY23, up from $18.2 billion, or 2.2% of GDP, in Q1 FY23 and $9.7 billion, or 1.3% of the GDP a year earlier, according to data released by the Reserve Bank of India on Thursday.
The underlying reason was the widening of the merchandise trade deficit in Q2 FY23 to $83.5 billion from $63.0 billion in Q1 FY23 and an increase in net outgo under investment income.
“While it was expected that India’s current account deficit would widen to an all-time high in Q2’23, the size of the deficit exceeded even the upper end of our forecast range of $31-34 billion,” said Aditi Nayar, chief economist at ICRA. She explained that negative surprises in the merchandise trade deficit and primary income outweighed the higher-than-expected services surplus and secondary income flows.
With a fall in the average trade deficit in October-November 2022 relative to the previous three months and a robust services trade balance in October 2022, the size of the CAD will recede appreciably to around $25-28 billion in Q3 from the all-time high while remaining substantial, according to ICRA’s estimates.
“We project the FY2023 CAD at an unpalatable $115 billion of GDP,” Nayar said.
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