India’s current account deficit (CAD) ebbed to $13.4 billion in January-March 2022 as against $22.2 billion in October-December 2021, according to Balance of Payment data released by the Reserve Bank of India (RBI) on June 22.
The deficit in January-March 2021 was $8.1 billion.
In terms of percentage, the CAD in January-March 2022 amounted to 1.5 percent of GDP, lower than 2.6 percent of GDP in the October-December quarter.
“The sequential decline in CAD in Q4:2021-22 (January-March) was mainly on account of a moderation in the trade deficit and lower net outgo of primary income,” the central bank said.
The Current Account Deficit (CAD), which is an macroeconomical gauge, represents the difference between the money received from exports and the money spent on imports. If the value of imported goods and services outpaces the value of export, the country is said to be in a deficit, or if vice versa happens, then in surplus.
Remarkably, the current account also considers payments from domestic capital deployed overseas.
The current account also calculates income from foreign sources, including interest and dividends, expenses on foreign sources, and transfers such as aid.
- Trade gap = Exports – Imports
- Current Account = Trade gap + Net transfers + Net income from foreign sources
The Balance of Payments data suggested that goods worth $618.6 billion imported in 2021-22 compared with $398.5 billion in the year-ago period, leading to the widening of the trade deficit.
Export of goods in 2020-21 was $296.3 billion, while in 2021-22, it advanced to $429.2 billion.
India’s merchandise trade deficit narrowed to $54.5 billion in the first three months of 2022 from $59.8 billion in the October-December quarter, resulting in fall the CAD.
The country’s service trade witnessed a surplus, marginally up to $28.3 billion in Q1CY22 from $27.8 billion in Q4CY21 and $23.5 billion in the Jan-March quarter of 2021.
Other factors that weighed in moderating the CAD were lower net outgo of primary income, including compensation of employees, and investment income, which stood at $8.4 billion last quarter.
In October-December 2021, the net outgo of primary income amounted to $11.5 billion.
The trade deficit increased to $189.5 billion in FY22 from $102.2 billion in FY21, which aided in decreasing the CAD, which is considered an essential representation of a country’s external strength, the RBI said.
Percentage-wise, the CAD recorded a deficit of 1.2 percent of GDP in FY22, higher than 0.9 percent of GDP in FY21.