Trends & Tides – Balance of Payments Q2FY24

In Q2FY24, India’s Current Account Deficit (CAD) marginally narrowed to 1.0% of GDP in Q2FY24 from 1.1% in the previous quarter. The current account was broadly stable as an improvement in services exports offset the higher merchandise trade deficit. Higher core and valuables deficits drove the rise in the merchandise trade deficit. The core deficit witnessed an uptick primarily due to an increase in the electronics deficit. Services, however, witnessed a broad-based improvement.

The capital account surplus fell substantially to US$ 10 bn in Q2 from US$ 34 bn in the previous quarter, due to lower FPI equity, FDI, and banking capital inflows. Consequently, the capital account surplus decreased to 1.2% of GDP in Q2 from 4.0% in the previous quarter.

The Balance of Payments (BoP) surplus decreased to US$ 2.5 bn from US$ 24.4 bn in the previous quarter, due to a weak capital account surplus. However, forex reserves decreased by US$ 7.3 bn in Q2 on account of a US$ 9.9 bn valuation loss.

The CAD is expected to be around 1.5% of GDP in FY24. Potential risks to the outlook stem from a fragile external environment and geopolitical conflicts.

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