Greater trade deficit is expected to widen India’s current account deficit to 1.5 per cent of the GDP in FY22.
Notably, India’s current account was in a surplus of 0.9 per cent in FY21.
The recent data showed that a wider trade deficit on the back of expensive commodities negatively impacted the current account.
Resultantly, India’s Q3FY22 current account widened to $23 billion.
“Wider CAD in 3QFY22 was on account of a larger merchandise trade deficit, which stood at 7.2 per cent of GDP, following a deficit of 5.9 per cent of GDP (or USD44.5b) in 2QFY22,” said Motilal Oswal Financial Services in a report.
“A spurt in imports vis-a-vis exports led to a wider merchandise trade deficit. Excluding petroleum products, India had a current account surplus of 0.8 per cent of GDP, lower than 2.2 per cent of GDP in 2QFY22 and 1.9 per cent of GDP in 3QFY21.”
Besides, the report pointed out that excluding gold, India had a current account deficit of 1.1 per cent of GDP in 3QFY22.
Furthermore, the report said that net foreign capital inflows into India amounted to $23.2 billion supported by other investments such as higher trade credit, advances, and receivables.
“While FDI investments halved to $5.1 billion in 3QFY22 from $10 billion in 2QFY22, there was a net outflow of $4.7 billion in FPI investments in 3QFY22 from an inflow of a similar quantity in 2QFY22.”
“Accordingly, there were barely any FXR accretions in 3QFY22.”
In addition, the report said that GDS (gross domestic savings) was at a six-quarter low in 3QFY22.
“With total investments decelerating to 28.6 per cent of GDP in 3QFY22 and CAD at 2.7 per cent of GDP, implied savings too moderated to only 25.9 per cent of GDP in 3QFY22 from 32.3 per cent of GDP in 2QFY22.”