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    The trade deficit widened significantly to its highest level in nine years due to weak exports and strong imports. While capital account surplus declined, foreign direct investment fell sharply. As a result, India's balance of payments slipped into a deficit for the first time in four years. For the current fiscal year, exports and imports are expected to contract due to global uncertainties, but services surplus and foreign capital inflows should help improve external balances and result in a balance of payments surplus. However, volatility remains based on financial market conditions.

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    Jan File

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    Ashwin Gophan
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    The trade deficit widened significantly to its highest level in nine years due to weak exports and strong imports. While capital account surplus declined, foreign direct investment fell sharply. As a result, India's balance of payments slipped into a deficit for the first time in four years. For the current fiscal year, exports and imports are expected to contract due to global uncertainties, but services surplus and foreign capital inflows should help improve external balances and result in a balance of payments surplus. However, volatility remains based on financial market conditions.

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    The trade deficit widened significantly to its highest level in nine years due to weak exports and strong imports. While capital account surplus declined, foreign direct investment fell sharply. As a result, India's balance of payments slipped into a deficit for the first time in four years. For the current fiscal year, exports and imports are expected to contract due to global uncertainties, but services surplus and foreign capital inflows should help improve external balances and result in a balance of payments surplus. However, volatility remains based on financial market conditions.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    17 views1 page

    Jan File

    Uploaded by

    Ashwin Gophan
    The trade deficit widened significantly to its highest level in nine years due to weak exports and strong imports. While capital account surplus declined, foreign direct investment fell sharply. As a result, India's balance of payments slipped into a deficit for the first time in four years. For the current fiscal year, exports and imports are expected to contract due to global uncertainties, but services surplus and foreign capital inflows should help improve external balances and result in a balance of payments surplus. However, volatility remains based on financial market conditions.

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    of 1

    Macro Review

    June 28, 2023, | Vol. 5, Issue 6

    provided some downside support. Trade deficit widened by 40% to US$265bn in


    FY23 or 7.8% of GDP (The highest in nine years as a % of GDP) as weak external
    demand weighed on non-oil exports (-0.6%), while non-oil imports grew by a
    strong 11.6% on resilient domestic demand. Capital account surplus, however, fell
    by 31% to US$58.9bn or 1.7% of GDP—the lowest in six years. This was due to a
    sharp decline in net FDI inflows (To a nine-year low of US$28bn), short-term loans
    (-68% to US$ 6.5bn) and external commercial borrowings (-US$ 3.8bn vs. +US$
    8.1bn in FY22), partly compensated by strong banking capital inflows that stood at
    a nine-year high of US$21bn in FY23. As such, the BoP balance slipped into deficit
    of US$9.1bn in FY23—the first deficit in four years and the highest in last 11 years.
    • External balances to improve in FY24 even as uncertainties remain: Subdued
    external demand is likely to continue to weigh on India’s exports—evident from a
    11%+ YoY decline in the merchandise export bill in the first two months of FY24.
    Imports are also likely to see a contraction this year, primarily led by lower
    commodity prices, even as the ongoing domestic capex recovery should limit the
    downside. Services surplus, on the other hand, is likely to sustain the momentum,
    notwithstanding some pressure from softening external demand. Notwithstanding
    strong foreign capital inflows in FY24 till date, they are likely to remain volatile amid
    heightened financial market uncertainty, even as the BoP balance is expected to
    turn surplus again in FY24. In the light of global uncertainty, INR may remain under
    pressure, even as built up of forex reserves over the last few months (+US$17bn in
    FY24TD to US$596bn) should provide the requisite support.
    Table 1: Balance of Payments – Quarterly account
    US$ bn Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23
    Current account -8.2 6.6 -9.7 -22.2 -13.4 -18.0 -30.9 -16.8 -1.4
    CAD/GDP (%) -1.0 0.9 -1.3 -2.6 -1.6 -2.1 -3.8 -2.0 -0.2
    Trade balance -41.7 -30.7 -44.5 -59.7 -54.5 -63.1 -78.3 -71.3 -52.6
    Trade balance/GDP (%) -5.3 -4.4 -5.9 -7.1 -6.3 -7.4 -9.5 -8.4 -6.0
    Merchandise exports 90.4 95.6 102.7 106.8 171.7 183.5 189.0 104.5 114.1
    Merchandise imports 131.7 127.1 147.5 167.0 171.5 183.6 189.1 176.1 165.4
    Oil imports 28.7 30.9 38.6 43.0 49.4 53.2 53.4 52.0 50.8
    Non-oil imports 102.9 96.2 108.9 124.0 122.3 130.3 135.6 124.1 114.6
    Invisibles 33.6 37.3 34.8 37.6 41.1 45.1 47.4 54.5 51.2
    Net services 23.5 25.8 25.6 27.8 28.3 31.1 34.4 38.7 39.1
    Software earnings 23.5 25.1 26.8 28.4 29.3 30.7 32.7 33.5 34.4
    Transfers 18.8 19.0 19.0 21.3 21.1 22.9 24.8 28.5 24.8
    Investment income -9.7 -8.4 -10.5 -12.4 -9.2 -9.8 -12.6 -13.5 -13.4
    Other invisibles 0.9 0.9 0.7 0.9 0.8 0.9 0.8 0.8 0.8
    Capital account 12.3 25.4 39.6 22.5 -1.7 22.1 1.5 28.9 6.5
    Capital acc./GDP (%) 1.6 3.7 5.2 2.7 -0.2 2.6 1.5 0.8 0.5
    Foreign investments 10.0 12.0 12.6 -1.3 -1.4 -1.2 12.7 6.6 4.7
    FDI 2.7 11.6 8.7 4.6 13.8 13.4 6.2 2.0 6.4
    FII 7.3 0.4 3.9 -5.8 -15.2 -14.6 6.5 4.6 -1.7
    Loans 7.7 2.8 7.8 10.0 12.9 4.1 0.6 0.5 3.1
    Banking capital -4.4 4.1 0.4 8.2 -6.0 19.0 -8.4 14.4 -4.0
    NRI deposits -0.5 2.5 -0.8 1.3 0.2 0.3 2.5 2.6 3.6
    Others -1.0 6.5 18.9 5.6 -7.2 0.2 -3.4 7.3 2.8
    Errors & Omissions -0.7 -0.1 1.3 0.1 -0.9 0.5 -0.9 -1.0 0.4
    Overall balance (BoP) 3.4 31.9 31.2 0.5 -16.0 4.6 -30.4 11.1 5.6
    Source: RBI, CMIE Economic Outlook, NSE EPR.
    2

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