New Delhi: India’s current account deficit (CAD) touched an all-time high of $36.4 billion, or 4.4% of the GDP, in the second quarter of the current fiscal, mainly on account of a widening trade gap, data released by the Reserve Bank of India on Thursday, December 29, showed.
According to Moneycontrol, the previous record for the highest CAD was $31.77 billion, posted in the third quarter of 2012-13.
In the first quarter of the current fiscal, India’s current account balance recorded a deficit of $18.2 billion, or 2.2% of the GDP. In the year-ago period, it recorded a CAD of $9.7 billion, or 1.3% of the GDP.
“Underlying the current account deficit in Q2:2022-23 was the widening of the merchandise trade deficit to $83.5 billion from $63 billion in Q1:2022-23 and an increase in net outgo under investment income,” the RBI said.
It also said the current account deficit for the April-June quarter of 2022-23 has been revised downwards due to downward adjustment in customs data.
“India recorded a current account deficit of 3.3% of GDP in H1:2022-23 on the back of a sharp increase in the merchandise trade deficit, as compared with 0.2% in H1:2021-22” the RBI added.
“While it was expected that India’s current account deficit would widen to an all-time high in July-September, the size of the deficit exceeded even the upper end of our forecast range of $31-34 billion,” Aditi Nayar, chief economist at ICRA, told the news outlet.
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A nation has a current account deficit when it sends more money to sources abroad than it receives from sources abroad.
A trade deficit is normally the largest component of a current account deficit. It’s a situation when a country imports more than it exports in a given period of time.
India’s trade deficit touched a record high of $30 billion in July. It was $10 billion in the same period last year.
A higher trade deficit is a negative sign that a country is struggling to sell its goods internationally. A weak currency, which makes trade expensive, is another factor that can lead to a high trade deficit.
Meanwhile, the RBI’s Financial Stability Report said the steady net inflows of foreign direct investment and the resumption of portfolio flows since July 2022 indicate that the CAD will be comfortably financed.
Net foreign portfolio investment recorded inflows of $6.5 billion, up from $3.9 billion during the second quarter of 2021-22, the report said.
Net FDI inflows at $20 billion in the first half of 2022-23 were comparable with $20.3 billion in the similar period of 2021-22. Portfolio investment recorded a net outflow of $8.1 billion as against an inflow of $4.3 billion in H1 of 2021-22.
(With inputs from PTI)