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India’s current account balance slipped into a deficit of $9.6 billion in Q2 (July-September) 2021-22 as against a surplus of $6.6 billion in Q1 (April-June), mainly due to widening of trade deficit and an increase in net outgo of investment income.
The current account balance was in surplus mode in the year-ago period at $15.3 billion.
As a percentage of GDP, the current account deficit (CAD), which arises when a country's total import of goods, services and transfers is greater than exports, in the reporting quarter (Q2) was at 1.3 per cent. In the preceding quarter, the current account balance surplus was at 0.9 per cent of GDP.
Trade deficit in Q2FY22 widened to $44.4 billion from $30.7 billion in the preceding quarter, per RBI’s report on Developments in India’s Balance of Payments.
‘Huge widening ahead’
Aditi Nayar, Chief Economist, ICRA, said: “The current account deficit in Q2 FY22 was somewhat smaller than our expectation. Nevertheless, a huge widening lies ahead, with the large merchandise trade deficits seen in October-November 2021.
“We expect the current account deficit to print in excess of $25 billion in Q3 FY22, rivalling the size of the full year CAD in FY20. For the year as a whole, we foresee the CAD at $40-45 billion, or around 1.4 per cent of GDP.”
Robust export performance
The central bank said net services receipts decreased marginally over the previous quarter but increased on a year-on-year (y-o-y) basis, on the back of robust performance of the exports of computer and business services.
Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $21.1 billion, an increase of 3.7 per cent from their level a year ago.
Net outgo from the primary income account, mainly reflecting net overseas investment income payments, increased sequentially as well as on a y-o-y basis.
In the financial account, net foreign direct investment recorded an inflow of $9.5 billion, lower than $24.4 billion a year ago. Net foreign portfolio investment was $3.9 billion as compared with $7.0 billion in Q2 FY21.
Net external commercial borrowings to India recorded inflow of $4.1 billion in Q2 FY22 as against an outflow of $3.7 billion a year ago.
Non-resident deposits recorded net outflow of $0.8 billion as against an inflow of $1.9 billion in Q2 FY21.
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