India’s current account saw a deficit of $23 billion or 2.7% of the gross domestic product (GDP) in Q3FY22, the sharpest such gap since the second quarter of Q2FY19, mainly owing to a widening of the merchandise trade deficit to an unprecedentedly high $60 billion.

The December quarter also witnessed net portfolio outflows of $1.6 billion against inflows of $28.9 billion a year ago; yet, there was a modest accretion of $0.5 billion to the foreign exchange reserves on a balance of payment (BoP) basis in the quarter. The accretion was a robust $32.5 billion in the year-ago quarter.

In Q2FY22, the current account deficit (CAD) came in at a moderate 1.3% of GDP, while the account had a surplus of 0.9% of GDP in the previous quarter. Still, there was a large accretion of $31 billion to the reserves in Q2FY22, almost the same level as in the year-ago period, when the current account had a significant surplus of $15.5 billion.

The March quarter could also see a high CAD, but a bit lower than in Q3. Goods trade deficits remained relatively high in January and February 2022. If oil prices remain high, the CAD could see a further widening in Q1FY23.

The capital account had a surplus of only $23.2 billion in Q3FY22, compared with $40.4 billion in the previous quarter and $33.5 billion in the year-ago quarter. If the Ukraine crisis turns out to be a medium-term or long-term event, the RBI may have to let the rupee depreciate to address the BoP concerns. But if the geopolitical tensions wither away soon, then no such interventions may be required, analysts said.

Releasing the Q3 BoP data, the RBI said in a statement: “Net services receipts increased (in Q3), both sequentially and on a year-on-year basis, on the back of robust performance of net exports of computer and business services. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $23.4 billion, an increase of 13.1% from their level a year ago. Net outgo from the primary income account, mainly reflecting net overseas investment income payments, increased sequentially as well as on a y-o-y basis.”

In the financial account, net foreign direct investment recorded an inflow of $5.1 billion, lower than $17.4 billion a year ago. Portfolio investment recorded net outflow of $5.8 billion against an inflow of $21.2 billion in Q3:2020-21.

India recorded a current account deficit of 1.2% of GDP in April-December 2021 as against a surplus of 1.7% in April-December 2020.