Trends & Tides – Balance of Payments Q1FY24

In Q1FY24, India’s current account deficit (CAD) rose to 1.1% of GDP, marking a significant increase from 0.2% deficit in the preceding quarter. CAD increased on account of a higher merchandise trade deficit and weaker services surplus. The rise in the merchandise trade deficit was driven by higher core and valuables deficit. The core deficit (which excludes petroleum products and valuables) witnessed an uptick primarily due to an increase in coal imports during the June quarter.

The capital account improved on higher FPI (driven by equity) and banking capital inflows. Capital account surplus increased to 4% of GDP in Q1FY24 from 0.7% in the previous quarter.

Balance of payments (BoP) surplus increased to US$ 24.4 bn, attributed to a stronger capital account surplus in Q1. However, forex reserves increased by US$ 16.6 bn in Q1, on account of a US$ 7.8 bn valuation loss during the quarter (on account of USD appreciation against major currencies).

CAD is expected to be around 1.5% of GDP in FY24. Risks to the outlook stem from higher crude oil prices and a fragile external environment.

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