India's current account deficit widens to 2.7% of GDP in Q3

The current account deficit was $9.9 bn in the second quarter ended Sep 2021 and $2.2 bn a year ago

India’s current account deficit (CAD) widened to $23 billion in the third quarter ended December 2021 (Q3FY22), forming 2.7 per cent of the country’s gross domestic product (GDP) and reflecting a rise in overseas trade.

The current account deficit was $9.9 billion (1.3 per cent of GDP) in the second quarter ended September 2021(Q2FY22) and $2.2 billion (0.3 per cent of GDP) a year ago (Q3FY21), said the Reserve Bank of India in a statement.

RBI said the widening of CAD in Q3 was mainly on account of higher trade deficit. The trade deficit rose to $60.4 billion in Q3FY22 up from $34.6 billion in October-December 2020 (Q3FY21).

Aditi Nayar, Chief Economist, ICRA said the current account deficit widened in Q3FY22, but undershot the lower end of the expectation band of $24-28 billion, with a better-than-anticipated outcome for goods, services and secondary income.

For April-December 2021, India’s CAD was 1.2 per cent of GDP as against a surplus of 1.7 per cent in April-December 2020 on the back of a sharp increase in the trade deficit.

“We expect the current account deficit to recede somewhat in Q4FY22, to around $17-21 billion, with the third Covid wave temporarily curtailing certain imports,” Nayar added.

RBI said 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 and business services.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $23.4 billion in Q3FY22, an increase of 13.1 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, RBI said.

There was an accretion of $0.5 billion to the foreign exchange reserves (on Balance of Payments basis) in Q3FY22 compared with $32.5 billion in Q3FY21.

For nine months ended December 2021, accretion to foreign exchange reserves (on BoP basis) was $63.5 billion down from $83.9 billion in April-December 2020.