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India Ratings & Research (Ind-Ra) forecasted that the Current Account Deficit (CAD) for the October-December quarter (Q3) of the current fiscal year 2023-24 will rise to 1.2% of GDP (Gross Domestic Products). A possible explanation could be a decline in exports despite a relatively mild decline in imports.
The July–September quarter (Q2) of FY24 had a 1% deficit. If it increased to 1.2% in the third quarter, it would be a one-year high. The current account deficit or surplus is the difference between the money received and sent from the country through exchanging goods and services and transferring capital from domestic production factors overseas.
“Ind-Ra expects the Current Account Balance to have been in a deficit of around $11 billion (1.2% of GDP) in 3QFY24. This would be marginally higher than a deficit of 1% of GDP in the previous quarter and at a year’s high (3QFY23: $16.8 billion, 2% of GDP),” the agency said in a statement.
Further, it said, it expects the current account deficit to dip in 4QFY24. Although the global economic environment remains uncertain, there are nascent signs of a pick-up in economic activity. The global manufacturing PMI expanded for the first time in 17 months in February 2024 (50.3). The expansion was stronger in the US and emerging economies (barring the European region).
The agency expects merchandise exports to increase to around $117 billion in 4QFY24, up 2% YoY. This would be a seven-quarter high. Likewise, merchandise imports are expected to touch a six-quarter high of around $180 billion in 4QFY24, up 8% YoY. Overall, “Ind-Ra expects the goods trade deficit to moderate to $64 billion in 4QFY24,” it said.
Services demand has remained healthy despite global headwinds. The trend continues to be strong with the latest high-frequency indicators. The global services PMI reached a seven-month high of 52.4 in February 2024, with the push emanating from developed and emerging markets. Thus, “Ind-Ra opines the services trade surplus to sustain the record-breaking run and stand at a fresh high of $47 billion in 4QFY24,” the agency said.
Last month, RBI Governor Shaktikanta Das said that CAD for 2023-24 and 2024-25 would be eminently manageable. Further, he said that the net balance under services and remittances would remain in large surplus, partly offsetting the trade deficit. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $ 28.1 billion, an increase of 2.6% from their level during the corresponding period a year ago. He also said that the net balance under services and remittances would remain in large surplus, partly offsetting the trade deficit.
“India’s services exports remained resilient in October-December 2023, driven by software, business and travel services. Moreover, with around 10.2% share in world telecommunications, computer and information services exports, India is a significant player in the world software business,” Das said in his statement while adding that according to the World Bank, with an estimated $135 billion in inward remittances in 2024, India would remain the largest recipient of remittances globally.
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