India's CAD stood at 1% of GDP in Q4FY21, full year in surplus at 0.9%

Experts say surge in gold imports contributed to widening of CAD in Q4FY21, in spite of spike in exports

Reflecting the rise in economic momentum, India's current account balance showed a deficit of one per cent of GDP ($8.1 billion) in the fourth quarter ended March 2021 (Q4FY21). The current account was in surplus at 0.1 per cent ($0.6 billion) in the fourth quarter of last year (Q4FY20).

The current account deficit (CAD) was 0.3 per cent of Gross Domestic Product ($2.2 billion) in the third quarter of FY21 (Q3FY21).

For the full year FY21, the balance recorded a surplus of 0.9 per cent of GDP as against a deficit of 0.9 per cent in FY20, according to Reserve Bank of India data.

Aditi Nayar, Chief Economist, Icra said a normalisation in import demand as well as a surge in gold imports contributed to the widening of the CAD in Q4FY21 from $1.7 billion in the previous quarter, in spite of the massive increase in exports in March 2021.

The current account deficit in Q4FY21 was primarily on account of a higher trade deficit and lower net invisible receipts than in the corresponding period of the previous year.

The private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $20.9 billion in Q4FY21, up by 1.7 per cent from their level a year ago, RBI said.

Rahul Bajoria, Chief India Economist, Barclays, said with activity continuing to normalise and higher commodity prices, the current account deficit is likely to widen in the coming quarters. In the current fiscal year (FY22), India's current account deficit is expected to be $35 billion (1.1 per cent of GDP), although robust capital flows will ensure a BoP surplus of $50 billion, he added.

On Balance of Payments basis (BoP), there was an accretion of $3.4 billion to the foreign exchange reserves in Q4FY21 as against an accretion of $18.8 billion in Q4FY20.

In 2020-21, there was an accretion of $87.3 billion to foreign exchange reserves (on a BoP basis), RBI added.