India reports FY22 CAD of 1.2% as trade deficit widens

Net FPI recorded an outflow of $15.2 bn mainly from equity market

India recorded a current account deficit (CAD) 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 earlier, according to data released by the Reserve Bank of India (RBI) on Wednesday.

“The current account balance recorded a deficit of 1.2% of GDP in 2021-22 as 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 said in a release.

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

Net Foreign Direct Investment (FDI) inflows at $38.6 billion in 2021-22 were lower than $44 billion in 2020-21. Net Foreign Portfolio Investment (FPI) recorded an outflow of $16.8 billion in 2021-22 as against an inflow of $36.1 billion a year earlier.

 For the January-March 2022 quarter, the CAD narrowed on a sequential basis to $13.4 billion, or 1.5% of GDP, against $22.2 billion, or 2.6% of GDP, in the December 2021 quarter.

“The current account deficit printed well below our forecast of $16 billion in Q4 FY2022 benefiting from higher than expected secondary income,” said Aditi Nayar, chief economist at rating agency ICRA.

“On a year-on-year basis, although gold imports halved, and the services trade surplus rose, this improvement was dwarfed by the widening of the merchandise trade deficit led by imports of commodity inputs such as crude oil, coal and fertilisers, as well as electronic goods,” Ms. Nayar said.

The merchandise trade deficit narrowed to $54.5 billion in the March quarter compared with a deficit of $60.4 billion in the previous quarter. The deficit in the same quarter a year earlier, however, had stood at $41.7 billion.

As per the data, net External Commercial Borrowings to India recorded an inflow of $7.4 billion in 2021-22 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 Balance of Payment (BoP) basis, the RBI data showed.

As per preliminary data on India’s BoP for the fourth quarter (January to March), current account deficit (CAD) decreased to $13.4 billion (1.5% of GDP) in Q4 2021-22 from $22.2 billion (2.6 % of GDP) in Q3:2021-22. “The sequential decline in CAD in Q4 2021-22 was mainly on account of a moderation in trade deficit and lower net outgo of primary income,” the RBI said.

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 to $23.7 billion, up by 13.4% from their level a year earlier.

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. In the financial account, net foreign direct investment (FDI) at $13.8 billion was higher than $2.7 billion in Q4 2020-21.

Net foreign portfolio investment recorded an outflow of $15.2 billion – mainly from the equity market. Net ECBs to India were lower at $3.3 billion in Q4 2021-22 as compared with $6.1 billion a year earlier.

There was a drawdown of $16 billion in the foreign exchange reserves (on a BoP basis) as against an accretion of $3.4 billion in Q4 2020-21, according to the data.

(With inputs from PTI, Reuters)