India's current account deficit dips 1.5% to $13.4bn in March quarter

India’s current account deficit (CAD) decreased to $13.4 billion, around 1.5% of the gross domestic product (GDP), in fourth quarter ended March 2022, from $22.2 billion during October-December 2021 (Q3 FY22), the data released by the Reserve Bank of India shows. During the same period last year (Jan-March 2021), CAD stood at $8.1 billion.

"The sequential decline in CAD in Q4:2021-22 was mainly on account of a moderation in the trade deficit and lower net outgo of primary income," says the RBI report.

Notably, India's merchandise trade deficit in May 2022 stood at $24.29 billion, which was 271.96% higher than the $6.53 billion in May 2021. While quarterly CAD declined, for the full fiscal year (FY22) it rose to a three-year high of $38.7 billion, mainly due to a merchandise trade deficit that stood at $189.5 billion in FY22, almost double than $102.2 billion in FY21. Rising crude oil prices and other commodity prices, coupled with higher imports, led to the CAD rise in the full fiscal year.

During the said quarter, the net services receipts increased, both sequentially and on a year-on-year (y-o-y) basis, on the back of a rise in net earnings from computer and business services.

Private transfer receipts, mainly representing remittances by Indians employed overseas, increased 13.4% YoY to $23.7 billion during the period. Net outgo from the primary income account, largely reflecting net income payments on foreign investment, decreased sequentially as well as on a y-o-y basis, shows the RBI data.

In the financial account, the net foreign direct investment (FDI) at $13.8 billion during Q4 FY22 was way higher than $2.7 billion in Q4 FY21, the period when Covid hit economies hard.

Net foreign portfolio investment (FPI) recorded an outflow of $15.2 billion – mainly from the equity market. The data show there was a drawdown of $16 billion in the foreign exchange reserves (on a BoP basis) against an accretion of $3.4 billion in Q4 FY21.

For the full fiscal year, the current account balance recorded a deficit of 1.2% of GDP in 2021-22 against a surplus of 0.9% in 2020-21 as the trade deficit widened to $189.5 billion from $102.2 billion a year ago, the RBI data shows.

Net invisible receipts were higher in 2021-22 due to an increase in net exports of services and net private transfer receipts, even though net income outgo was higher than a year ago.

Net FDI inflows were $38.6 billion in 2021-22, lower than $44 billion in 2020-21, while net FPI recorded an outflow of $16.8 billion in 2021-22, much lower than $36.1 billion a year ago.

During FY22, the net external commercial borrowings to India recorded an inflow of $7.4 billion compared with $0.2 billion in 2020-21. In 2021-22, there was an accretion of $47.5 billion to foreign exchange reserves on a BoP basis.