Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-news/current-account-deficit-widens-to-9-year-high-of-23-billion-in-q3/article65283006.ece
As a percentage of GDP, the current account deficit was at 2.7 per cent during the October-December quarter of FY22
The country’s current account deficit (CAD) widened steeply to $23 billion in Q3 (October-December) of 2021-22 against $9.9 billion in the preceding quarter, mainly on account of higher trade deficit. The CAD was at $2.2 billion in the year-ago period.
As a percentage of GDP, the CAD, which arises when a country’s total import of goods, services and transfers is greater than exports, at 2.7 per cent in the reporting quarter.
In the preceding quarter and the year-ago quarter, the CAD was at 1.3 per cent and 0.3 per cent, respectively, of GDP.
At $23 billion, the current account deficit for the last quarter of 2021 is the highest in nine years.
Net services receipts increased, both sequentially and on a year-on-year (y-o-y) basis, on the back of robust performance of net exports of computer ($28.356 billion) and business services ($1.590 billion).
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $23.4 billion, an increase of 13.1 per cent from their level a year ago, according to RBI’s statement on ‘Developments in India’s balance of payments during the third quarter (October-December) of 2021-22’.
According to the statement, net outgo from the primary income account, mainly reflecting net overseas investment income payments, increased sequentially and on a y-o-y basis.
In the financial account, net foreign direct investment recorded an inflow of $5.1 billion, lower than $17.4 billion a year ago. Portfolio investment recorded net outflow of $5.8 billion as against an inflow of $21.2 billion in Q3 FY21.
Net external commercial borrowings to India recorded outflow of $0.2 billion in Q3 FY22 as compared with $1.6 billion a year ago. Non-resident deposits recorded net inflow of $1.3 billion as compared with $3.0 billion in Q3 FY21.
According to RBI, there was an accretion of $0.5 billion to the foreign exchange reserves (on a Balance of Payments/ BoP basis) as compared with $32.5 billion in Q3 FY21
Madan Sabnavis, Chief Economist, Bank of Baroda, said the capital account just about covered the CAD leading to marginal increase in forex reserves. Referring to forex sales by RBI in Q4 (January-March 2022), he said there would be a sharp drop in forex reserves with BOP turning negative further in the last quarter.
For the full year (FY22), CAD would be in the region of 1.5-2 per cent with sharp increase in Q4 to 3.5 per cent, opined Sabnavis.