Q3 CAD narrows to 1.2% of GDP as services exports grow 5.2%
Mumbai: Indian exporters have received notices from the customs department demanding payment of duty differentials on rice exported in the last 18 months, four exporters told Reuters, a rare tax demand that could cripple rice shipments from India. The world’s biggest rice exporter imposed a 20% export duty on white rice in September 2022, followed by a similar duty on parboiled rice in August 2023 to control domestic rice prices ahead of key 2024 state and national elections.
India’s current account deficit (CAD) narrowed to 1.2% of gross domestic product (GDP) in the third quarter, from 1.3% in the preceding quarter and 2% a year ago.
The CAD narrowed to $10.5 billion in the December quarter of FY24 against a deficit of $11.4 billion in the preceding three months, according to data released by the Reserve Bank of India (RBI) on Tuesday. In the third quarter of FY23—the year-ago period— the current account balance recorded a deficit of $16.8 billion.
The RBI revised the second quarter CAD upwards to 1.3% from 1% earlier owing to upward adjustment of customs data on merchandise imports.
Merchandise trade deficit expanded to $71.6 billion in Q3FY24 from $64.5 billion in the previous quarter.
Services exports and transfers saw an improvement in the third quarter.
These more than offset the widening of trade balance between the second and third quarters, and this led to the narrowing of the current account deficit.
“Services exports grew by 5.2% on a y-o-y basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and from a year ago that helped cushion the current account deficit,” said the central bank in the statement.
“Consistent positive surprises on both goods and services exports reflect resilient global demand and another healthy print of CAD/GDP of 1.2% for 3QFY24 and FY24 CAD/GDP ratio likely tracking 0.8% or lower. More crucially, structural notable changes in net services exports have given a fillip to the external sector— with software exports holding up well and net non-software exports led by professional consulting services likely to surge by over 55% y-o-y in FY24,” said Madhavi Arora, lead economist, Emkay Global.
Private transfer receipts— mainly representing remittances by Indians employed overseas—amounted to $31.4 billion, an increase of 2.1% over the level during the corresponding period a year ago.
In the financial account, foreign direct investment recorded a net inflow of $4.2 billion as compared with a net inflow of $2.0 billion in Q3 of FY23. Foreign portfolio investment recorded a net inflow of $12.0 billion, compared with $4.6 billion during Q3FY23. External commercial borrowings to India recorded a net outflow of $2.6 billion in Q3FY24 as compared with a net outflow of $2.5 billion a year ago.