The Reserve Bank of India (RBI) revealed encouraging figures regarding India’s economic performance, showcasing a notable improvement in the country’s current account deficit. According to the latest report by the RBI, India’s current account deficit diminished to $10.5 billion in the October-December quarter, marking a decline from $11.4 billion in the previous three months and $16.8 billion a year ago. This reduction signifies a positive trend in India’s economic landscape, reflecting stability and resilience amid global uncertainties.
The decline in the current account deficit, which now stands at 1.2 percent of the GDP, highlights the efficacy of strategic financial management and policy measures implemented by the Indian government and regulatory authorities. Notably, this improvement comes amidst various global challenges, underlining India’s capability to navigate through economic headwinds effectively.
The report further elaborates on several key indicators contributing to this positive trajectory. Net Foreign Direct Investment (FDI) inflow during April-December 2023 amounted to $8.5 billion, although lower compared to the same period in the previous year ($21.6 billion), still denotes a significant inflow of foreign investment into the country’s economy. This influx of FDI reflects investor confidence in India’s economic prospects and business environment.
Additionally, the accretion of foreign exchange reserves during the third quarter of the current financial year reached $6.0 billion, compared to $11.1 billion a year ago. While this indicates a decrease in the pace of reserve accumulation, it remains a crucial aspect of maintaining stability in the country’s external sector and cushioning against unforeseen shocks.
Despite a marginal increase in the merchandise trade deficit, which stood at $71.6 billion, other sectors exhibited promising growth. Services exports recorded a notable expansion of 5.2 percent year-on-year, propelled by increased exports of software, business, and travel services. This growth in services exports contributed significantly to offsetting the trade deficit and bolstering the overall current account balance.
Examining the financial account, the report highlights a substantial increase in foreign direct investment, with a net inflow of $4.2 billion, more than double the figure recorded in the same period of the previous year. Similarly, foreign portfolio investment witnessed a significant uptick, reaching a net inflow of $12.0 billion during the quarter, compared to $4.6 billion a year ago.
However, external commercial borrowings to India experienced a net outflow of $2.6 billion in October-December, contrasting with the net outflow of $2.5 billion observed in the corresponding period of the previous year. Nonetheless, non-resident deposits registered a higher net inflow of $3.9 billion, indicating sustained confidence from foreign depositors in the Indian economy.
Overall, the RBI’s report underscores positive trends in India’s economic indicators, reflecting resilience and adaptability in the face of global economic fluctuations. While challenges persist, particularly in the realm of trade deficits and external borrowings, the consistent inflow of foreign investment and robust performance in services exports bode well for India’s economic trajectory in the coming quarters. These developments reaffirm India’s position as a key player in the global economy, poised for sustainable growth and development in the years ahead.
