India’s CAD Narrows Sequentially in Q4

India’s current account deficit, or the gap between imports and exports, narrowed sequentially to 1.5% of the gross domestic product in the March quarter, while the full-year metric wasn’t as wide as initially estimated because of higher net services exports and private transfer receipts.

Software exports surged and outflow from dividend and interest payouts fell in the March quarter, allowing the deficit to narrow sequentially in the March quarter.

Full-year CAD at 1.2% of GDP was better than the market expectations of up to 1.5%, especially in the aftermath of a pronounced hardening in oil prices toward the latter half of FY22.

India’s CAD decreased to $13.4 billion (1.5% of GDP) in Q4, from $22.2 billion (2.6% of GDP) in Q3, preliminary estimates published Wednesday by Reserve Bank of India (RBI) showed. But it was higher than $8.1 billion (1% of GDP) in Q4 FY21.

The major component of ‘Invisibles’ reflecting services and investment income flows did better – both sequentially and on a year-on-year basis. Net services receipts increased on the back of a rise in net earnings from computer and business services, RBI said.

Private transfer receipts, mainly reflecting remittances by Indians employed overseas, increased to $23.7 billion, up 13.4% from a year ago.

Net outgo from the primary income account, largely reflecting net income payments on foreign investments, decreased both sequentially and on a y-o-y basis.

For the entire fiscal year, the current account balance recorded a deficit of 1.2% of GDP in FY22 as against a surplus of 0. 9% in FY21 as the trade deficit widened to $189.5 billion from $102.2 billion a year ago. But most market analysts had forecast higher CAD for the fiscal as crude and commodity prices surged during the year.

Net invisible receipts were higher in FY22 due to an increase in net exports of services and net private transfer receipts, even though net income outgo was higher than a year ago.

Overall balance of payments surplus in FY22 almost halved to $47.5 billion from $87.3 billion a year ago.

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