Current account deficit widens to 2.7% of GDP in Q3 FY2022

1 Apr 2022 , 10:09 AM

India’s current account deficit (CAD) increased to $ 23.0 billion (2.7 per cent of GDP) in the third quarter (Q3) of 2021-22 from $ 9.9 billion (1.3 per cent of GDP) in Q2 of 2021-22 and $ 2.2 billion (0.3 per cent of GDP) a year ago in Q3 of 2020-21.

The RBI said on Thursday that, the current account deficit was 1.2 per cent of GDP in April-December 2021 as against a surplus of 1.7 per cent in April-December 2020 on the back of a sharp increase in the trade deficit. Further, the RBI said that the widening of CAD in Q3 of 2021-22 was mainly on account of higher trade deficit, according to the RBI. 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.

Aditi Nayar, Chief Economist, ICRA Ltd said, “The current account deficit widened in Q3 FY2022, but undershot the lower end of our expectation band of US$24-28 billion, with a better than anticipated outcome for goods, services and secondary income. We expect the current account deficit to recede somewhat in Q4 FY2022, to around US$17-21 billion, with the third wave temporarily curtailing certain imports.”

“We expect the net oil imports to widen by ~US$14-15 billion (0.4% of GDP) for every US$10/bbl increase in the average price of the Indian crude oil basket. However, other imports are likely to be constrained in this scenario, reducing the deterioration in the CAD.”

“If the ongoing geopolitical tensions between Ukraine and Russia push up the average price of the Indian crude oil basket in FY2023 to ~US$105/bbl, then the CAD is projected to widen to US$90-95 billion (2.5% of GDP). Large forex reserves are likely to avert a sudden sharp depreciation in the INR. We expect the US$-INR cross rate to trade in a range of 74-78/US$ in H1 FY2023,” ICRA added.