India’s Current Account Deficit Widens To 2.7% Of GDP In October-December Quarter

India’s current account in the three months ended December 2021 widened sharply, led by a rise in the merchandise trade deficit.

The nation’s current account recorded a deficit of $23 billion in the October-December quarter against a deficit of $9.9 billion in the July-September quarter, Balance of Payments data released by the Reserve Bank of India showed.

As a percentage of GDP, the current account balance was at 2.7% in the reported quarter compared with 1.3% in the preceding three months.

"The current account deficit widened in Q3 FY22, but undershot the lower end of our expectation band of $24-28 billion, with a better-than-anticipated outcome for goods, services and secondary income," Aditi Nayar, chief economist at ICRA, said. The current account deficit is expected to recede somewhat in Q4 FY22, to $17-21 billion, with the third wave temporarily curtailing certain imports, Nayar said.

The widening of the deficit was on account of a rise in the merchandise trade deficit to $60.4 billion from $44.4 billion in the previous quarter.

There was an accretion of $0.5 billion to foreign exchange reserves in balance of payment terms compared with $31.2 billion in the preceding three months.

Among key components:

• Foreign direct investment recorded an inflow of $5.1 billion

• Portfolio investments saw an outflow of $5.8 billion.

• Net external commercial borrowings to India recorded outflow of $0.2 billion in Q3 FY22 compared with an inflow of $4.1 billion in the previous quarter.

• Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $23.4 billion, an increase of 13.1% over a year ago.