There has been a vast improvement in India’s current account deficit from the days of the taper tantrum in 2013. From a deficit of 4.75% of gross domestic product (GDP) in the June 2013 quarter, it has come down to 1.15% of GDP in the September 2017 quarter (see Chart 1).
But how was this improvement achieved? It wasn’t because exports did well. Chart 2 shows that exports of goods fell from 18.79% of GDP in the September 2013 quarter to 12.16% in the September 2017 quarter.
Thankfully, the fall in imports of goods has been even steeper, as Chart 2shows. This is to a large extent the effect of lower crude oil prices, but it also reflects the lack of capital expenditure in the economy.
The chart also shows that exports of services as a percentage of GDP has come down a bit, mirroring the problems faced by India’s information technology firms.
In short, while the improvement in the current account position is welcome, a closer look shows a less rosy picture.