RISING SERVICES EXPORTS MAY PUSH INDIA'S CAD INTO SURPLUS TERRITORY

It’s raining external bounties for India as the economy closes financial year 2023-24 on one of the best growth narratives this fiscal – resilient exports and downward trending current account deficit (CAD) or trade deficit, keeping, as the Finance Ministry observes, “India’s external account stable despite persistent geopolitical headwinds”.

- NIVEDITA MUKHERJEE

In fact, the bigger news is that the CAD can be expected to cross into surplus territory this year, as barring any untoward surprises in the upcoming March trade data, the merchandise trade deficit in January to March period of 2024 has so far remained capped, largely unscathed by the unscathed by the Red Sea disruptions.

India’s CAD narrowed to 1.2 per cent of the GDP in October-December quarter of 2023 from 1.3 per cent of GDP in Q3, with the wider merchandise trade deficit countered by a pick-up in the services surplus and healthy remittances. The merchandise trade deficit had widened to USD 18.7 billion in February from USD 16.5 billion in January with a spike in gold imports to a four month high of USD 6 billion contributing to the widening in the merchandise trade deficit last month. However, during April-February FY2024, the positive impact of the drop in the value of imports outweighed the negative impact of a decline in exports, thereby leading to narrowing of merchandise trade deficit.