Declining CAD to aid domestic growth

➢ India’s current account deficit (CAD) decreased to 0.2% of the GDP

($1.4bn) in Q4FY23 from 1.6% ($13.4bn) OF GDP in Q4FY22
What caused CAD to decline ?
• Decline in Trade deficit in FY23 which was on account of lower
commodity prices as compared to previous quarters/year (e.g., Brent
crude corrected from ~$139 in March’22 to ~$75/barrel currently)
• Strong increase in Service exports that has gone up to 4.5% of GDP in
Q4FY23 from 3.3 % of GDP in Q4FY22. During 2022-23, services
exports grew faster (27.9 %) than merchandise exports (6.9 %).
• Within Services, Manufacturing services (up ~298%), Constructions
(up ~251%), Telecom & services (up ~17%) & Other business services
(up ~282%) grew in Oct-Dec’22 over Oct-Dec’21

What’s the way forward ?

• Service exports have been growing in FY23 and is expected to remain
stable in the near future
• Overall BOP (Balance of Payment) should be close to neutral with a
marginal deficit with Capital inflows funding the high CAD.

Going forward, Neutral CAD, moderating inflation, end of rate hike cycle in
2023 makes an ideal case for Fixed Income Investors and reap benefits of
higher yields.

Dt – 10.07.2023 Source: Economic ABSLAMC Research, RBI Bulletin For Private Circulation Only