Wider trade deficit driven by higher imports of goods led to India's current account slipping into deficit, at 1.2 per cent of GDP for FY22 against a surplus of 0.9 per cent of GDP in FY21. In absolute terms, the deficit for FY22 came at USD 38.7 billion as against a surplus of USD 24 billion in the year-ago period, data released by the RBI showed.
Current account balances are generally taken as a key representative of a country's external strength, and a widening in the past had led to rupee depreciation and also actions by rating agencies on the sovereign rating. For the January-March 2022 quarter, the CAD narrowed on a sequential basis to USD 13.4 billion or 1.5 per cent of GDP, as against USD 22.2 billion or 2.6 per cent of GDP in December 2021 quarter. In FY22, the trade deficit widened to USD 189.5 billion, up from USD 102.2 billion a year ago, which resulted in a slippage on the number which is considered as a key representation of a country's external strength, the RBI said.
The Balance of Payments data suggested that goods imports stood at USD 618.6 billion in FY22 as against USD 398.5 billion in the year-ago period, leading to the widening of the trade deficit. There has been a huge increase in commodity prices, especially crude oil on which India is dependent on imports. With the post-pandemic recovery leading to normalisation of economic activities, the demand for imports also rose. The RBI said an increase in services exports and transfer receipts led to an increase in the net invisible receipts in FY22.
The net benefit under the software services head alone stood at USD 109 billion. Net foreign direct investment (FDI) inflows at USD 38.6 billion in FY22 were lower than USD 44 billion in FY 21, the RBI said, adding that there was an outflow of USD 16.8 billion by foreign portfolio investors (FPI) during the fiscal year, as against an inflow of USD 36.1 billion a year ago. External commercial borrowings (ECBs) recorded an inflow of USD 7.4 billion in FY22 compared to USD 0.2 billion in FY21, when the corporates were in a de-leveraging mode. There was an accretion of USD 47.5 billion to the foreign exchange reserves on a balance of payment basis in the fiscal year.
On a sequential basis, the narrowing of CAD in the March quarter was attributed by the RBI to moderation in trade deficit and lower net outgo of primary income. Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to USD 23.7 billion, up 13.4 per cent from their level a year ago, the RBI said. The March quarter saw net foreign direct investment (FDI) at USD 13.8 billion as against USD 2.7 billion in the year-ago period, but the net foreign portfolio investment (FPI) recorded an outflow of USD 15.2 billion driven mainly by equity market pullouts. There was a drawdown of USD 16 billion in the foreign exchange reserves on a BoP basis in the March quarter, as against an accretion of USD 3.4 billion in the year-ago period, the RBI said.