The current account- sum of India’s exports and imports of goods and services- ended in a deficit of deficit at $ 23.0 billion (2.7 per cent of GDP) touched a nine- year high since the current account deficit (CAD) touched $31 billion in during the December quarter of 2012 according to the preliminary numbers released by the Reserve Bank of India. At the current levels and highest since the taper tantrums of 2013.
The CAD was less than half the latest levels at $ 9.9 billion or 1.3 per cent of GDP in Q2’2021-22 and is even higher than the deficit of $ 2.2 billion 0.3 per cent of GDP in the same period a year ago. “The widening of CAD in Q3’21-22 was mainly on account of higher trade deficit” RBI said in a release.
Trade deficit widened to $60.4bn from $44.4bn in Q3 21, as imports rose sharply amid normalisation of activity and rising commodity prices. Though exports also rose, it did not keep pace with import bill which surged due to improving growth and higher global prices.
The primary macro variable set to deteriorate given the Russia-Ukraine conflict is the current account deficit, which we now expect exceed $100bn in FY22-23, according to Barclays Capital. “ The external balance, which had been a major factor of support for India for the past two years, has seen its vulnerability to higher oil prices decline over the years, but the simultaneous rise in prices of coal, natural gas, edible oils, and gold will weigh on the trade deficit” said Rahul Bajoria, chief India economist at Barclay’s Capital.
Remittances by Indians employed overseas, amounted to $ 23.4 billion, an increase of 13.1 per cent from their level a year ago. Software services was the major saviour with net inflows of $28 billion during the quarter compared to $23 billion in the same period a year ago.
In the capital account , foreign portfolio investment recorded net outflow of $ 5.8 billion as against an inflow of $ 21.2 billion in Q3’20-21. Non-resident deposits recorded net inflow of $ 1.3 billion as compared with $ 3.0 billion in Q3’20-21. net foreign direct investment recorded an inflow of $ 5.1 billion, lower than $ 17.4 billion a year ago. The capital account ended in a lower surplus of $23.2 billion compared to a surplus of $ 35.5 billion in the same period a year ago.
Overall the balance of payments ended in a modest surplus of $465 million compared to a surplus of $32.5 billion in the same period a year ago.
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