Compared to a deficit of $8.1 billion (1% of GDP) in Q4 FY21, India’s current account balance showed a surplus of $6.5 billion (0.9%) in Q1 FY22. According to the Reserve Bank of India, the current account surplus in Q1FY21 was $19.1 billion (3.7% of GDP) (RBI).
The trade deficit for goods decreased from $41.7 billion in the quarter that ended in June 2021 (Q4FY21) to $30.7 billion in the quarter that began in June 2021 (Q1FY22), and net services receipts increased. In Q1FY21, the goods trade deficit was $11.7 billion.
The impact of the second wave of COVID-19 on demand for petroleum and gold in particular, according to Aditi Nayar, Chief Economist at ICRA, reduced the trade deficit and resulted in a current account surplus in Q1FY22. However, the magnitude of the surplus was larger than ICRAs had anticipated, driven by the services sector’s encouraging performance and secondary income, which mostly consisted of worker remittances.
On the strength of net exports of business and computer services, net services revenues increased both sequentially and year over year (YoY).
According to a statement from RBI , the private transfer receipts, which primarily represent remittances from Indians working abroad, totaled $20.9 billion, an increase of 14.8% from the previous year’s level.
The primary income account’s net outlay dropped sequentially and year over year, with net foreign investment income payments making up the majority of it.
Net foreign direct investment showed an inflow of $11.9 billion in the financial account in Q1FY22 as opposed to an outflow of $0.5 billion in Q1FY21.
On a balance of payments basis, the foreign exchange reserves increased by $31.9 billion as opposed to $19.8 billion in Q1FY21.
The current account surplus shown in Q1FY22 will only last a short time, according to Nayar, before transitioning to a broadly balanced position in Q2FY2022. As demand increases and economic activity returns to pre-Covid levels, it is anticipated that the balance will go into deficit in Q3 and Q4 of FY2022, amounting to around $10–12 billion each. In total, a current account deficit of $13–18 billion is anticipated for FY2022, or a moderate 0.5% of GDP