India's current account moves to deficit; gap to widen further

·2-min read
FILE PHOTO: FILE PHOTO: Reserve Bank of India logo is seen at the gate of its office in New Delhi

By Swati Bhat

MUMBAI (Reuters) - India's current account balance moved back into deficit in the three months from July to September, mainly due to the widening of the trade deficit, the Reserve Bank of India said in a release on Friday.

The current account deficit stood at $9.6 billion or 1.3% of GDP in the second quarter of fiscal year 2021/22 compared with a surplus of $15.3 billion in the same quarter a year ago.

In the preceding April-June quarter, the current account was in surplus to the tune of $6.6 billion.

"The deficit in the current account in Q2 2021/22 was mainly due to widening of trade deficit to $44.4 billion from $30.7 billion in the preceding quarter and an increase in net outgo (outflow) of investment income," the RBI said.

RBI said net services receipts decreased marginally over the previous quarter but increased year-on-year on the back of a robust performance from computer and business services exports.

Private transfer receipts, mainly remittances by overseas Indians, rose 3.7% on the year, while net foreign direct investment had an inflow of $9.5 billion, lower than $24.4 billion in the same quarter a year ago.

"The current account deficit in Q2 FY22 was somewhat smaller than our expectation. Nevertheless, a huge widening lies ahead, with the large merchandise trade deficits seen in October-November 2021," said Aditi Nayar, chief economist at rating agency ICRA.

"We expect the current account deficit to print in excess of $25 billion in Q3 FY22, rivalling the size of the full year CAD in FY20. For the year as a whole, we foresee the CAD at $40-45 billion, or around 1.4% of GDP," she added.

The country's balance of payments stood at a surplus of $31.2 billion in the second quarter of the financial year, compared with a surplus of $31.6 billion a year earlier.

(Reporting by Swati Bhat; Editing by Kevin Liffey and Jane Merriman)

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