India’s external sector vulnerability has reduced considerably. After printing at an elevated level of 3.8% of GDP in Q2 FY23, the current account deficit narrowed considerably to 2.0% in Q3 and further to 0.2% in Q4 FY23.
Download ReportQuantEco Research || Q4 FY23 BoP - Ascending comfort
India’s external sector vulnerability has reduced considerably as reflected in its balance of payments data. After printing at an elevated level of 3.8% of GDP in Q2 FY23, the current account deficit narrowed considerably to 2.0% in Q3 and further to 0.2% in Q4 FY23. The sharp improvement in CAD is not just on account of lower commodity prices and moderation in demand for imports, but more importantly is backed by a robust performance of services exports and remittance inflows. Overall, the improvement in CAD reflects a combination of cyclical, structural, and seasonal factors. On the capital accounts front, while debt flows might remain subdued on tight global financial conditions, equity inflows could see a revival as monetary tightening by key central banks comes to a pause in the coming months. We maintain our FY24 CAD forecast of 1.4% of GDP (USD 53 bn) vis-à-vis 2.0% (USD 67 bn) in FY23. However, basis recent strong revival in portfolio investors’ appetite for Indian assets, we now revise upwards our FY24 BoP projection to 0.6% of GDP (USD 24 bn) from our earlier expectation of 0.3% of GDP (USD 12 bn).