CAD reduces sequentially to 1.5% of GDP in Q4 as trade deficit moderates

Current account deficit (CAD) decreased sequentially to $13.4 billion (1.5 per cent of GDP) in the fourth quarter ended March 2022. CAD was down from $22.2 billion (2.6 per cent of GDP) in the third quarter ended December 2021.

The sequential decline in CAD in Q4 of FY22 was mainly on account of a moderation in trade deficit and lower net outgo of primary income, the Reserve Bank of India (RBI) said in a statement.

The current account was in deficit to the tune of $ 8.1 billion (1 per cent of GDP) a year ago (Q4 of FY21).

Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $23.7 billion in Q4 of FY22. It is up by 13.4 per cent from the level a year ago, RBI said.

Aditi Nayar, chief economist, ICRA, said the current account deficit printed well below forecast of $16 billion in Q4 of FY22, benefiting from higher-than-expected secondary income.
 

On a year-on-year basis, although gold imports halved, the services trade surplus rose.

But this improvement was dwarfed by widening of the merchandise trade deficit. It was led by imports of commodity inputs such as crude oil, coal and fertilisers as well as electronic goods, Nayar said.

For FY22, the current account balance recorded a deficit of 1.2 per cent of GDP ($38.7 billion) against a surplus of 0.9 per cent ($24 billion) in 2020-21. This came as the trade deficit widened to $189.5 billion in FY22 from $102.2 billion a year ago.

For balance of payments (BoP), there was a drawdown of $16 billion in the foreign exchange reserves in Q4 of FY22 against an accretion of $3.4 billion in Q4 of FY21.
 

As for 2021-22, there was an accretion of $47.5 billion to foreign exchange reserves. This is lower than the $87 billion in 2020-21.