India's current account deficit widens to $9.7 billion in the first quarter of fiscal year 2024, mainly due to a rise in merchandise trade deficit. This is a key indicator of the country's external sector and shows an increase from the $8.9 billion deficit in the same quarter last year. At the same time, net foreign direct investment inflows have increased to $6.3 billion and net external commercial borrowings have decreased to $1.8 billion in the current quarter. Non-resident deposits have also increased to $4 billion.
India's Current Account Deficit Widens to $9.7 Billion, Sparking Concerns
India's current account deficit, a key indicator of the country's external sector, has widened to $9.7 billion in the first quarter of fiscal year 2024, according to data from the Reserve Bank of India (RBI). This marks an increase from the $8.9 billion deficit recorded in the same quarter of the previous fiscal year.
The widening deficit is primarily attributable to a surge in merchandise trade deficit, which reached $113.1 billion during the quarter. This was driven by a sharp rise in imports and a modest growth in exports. The trade deficit was further exacerbated by a decline in net services exports.
Despite the widening current account deficit, there are positive signs in other areas of the external sector. Net foreign direct investment (FDI) inflows increased to $6.3 billion, while net external commercial borrowings (ECBs) declined to $1.8 billion. Non-resident deposits also rose to $4 billion.
Background
A current account deficit occurs when a country imports more goods and services than it exports. This deficit can be financed through inflows of foreign capital, such as FDI, ECBs, and remittances.
India's current account deficit has been a concern for policymakers in recent years, as it can lead to currency depreciation and put pressure on the country's foreign exchange reserves. The widening deficit in the first quarter of FY24 raises concerns about the sustainability of India's external sector in the face of rising global uncertainty and geopolitical tensions.
Top 5 FAQs
1. What is the significance of the current account deficit?
The current account deficit is a measure of the country's net trade in goods and services, and indicates whether the country is a net borrower or lender in the international financial markets.
2. Why has India's current account deficit widened?
The widening deficit is mainly due to a surge in merchandise trade deficit, caused by a rise in imports and a modest growth in exports.
3. What are the implications of a widening current account deficit?
A widening current account deficit can lead to currency depreciation, put pressure on foreign exchange reserves, and increase the country's external debt burden.
4. What measures can be taken to address the widening deficit?
Policymakers can take measures to promote exports, reduce imports, and attract foreign capital to finance the deficit.
5. What is the outlook for India's current account deficit?
The outlook for India's current account deficit is uncertain, but it is likely to remain elevated in the near term due to factors such as rising global commodity prices and geopolitical uncertainties.
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