Monday, 19 May, 2025
By: Anshul Vipat
India recorded a current account deficit (CAD) of 1.2% of GDP in 2021-22 against a surplus of 0.9 percent in 2020-21.
Countering ongoing geo-political and rising global uncertainties, India’s merchandise exports touched a record USD 192.59 billion in the past four months with an increase of 17.1 percent. This happened due to robust growth in petroleum products, engineering, gems and jewellery, chemicals, and pharmaceuticals. India has achieved merchandise export of USD 33.0 billion in August 2022, almost at similar levels of USD 33.38 billion in August 2021. In 2021-22, India’s merchandise exports had touched a record $420 billion.
On a worrisome note, India’s trade deficit ballooned to a record of $27.98 billion in August, data released by the commerce and industry ministry showed. The trade deficit jumped from $26.18 billion in June, exerting pressure on the domestic currency which has been trading at a record low against the US dollar. Trade deficit widened to $124.52 billion in April-August this fiscal as against $53.78 billion in the same period last year.
According to finance ministry's monthly economic review, India's CAD (current account deficit) will further deteriorate in 2022-23 on account of costlier imports and tepid exports on the merchandise account. Centre for Monitoring Indian Economy has predicted CAD to climb to 5.6 per cent of GDP in the quarter ending September 2022. According to the think tank, this would be the highest CAD-to-GDP ratio in a decade.
India recorded a current account deficit (CAD) of 1.2% of GDP in 2021-22 against a surplus of 0.9 percent in 2020-21. For the January-March 2022 quarter, the CAD narrowed on a sequential basis to $13.4 billion, or 1.5 percent of GDP, against $22.2 billion, or 2.6 percent of GDP, in the December 2021 quarter. The sequential decline in CAD in Q4:2021-22 was mainly on account of a moderation in trade deficit and lower net outgo of primary income.
According to CMIE, the widening of CAD will be solely led by an expansion in merchandise trade deficit. A sharp increase in commodity prices globally has fueled India's import bill. The IMF's energy price index which includes prices of crude oil, natural gas and coal has doubled from 156.2 in June 2021 to 311.8 in June 2022. These three form the bulk of India's imports. Besides, imports of other commodities has also swelled as demand is slowly moving back to pre-pandemic period. Although the think tank has estimated that the deficit will be moderated a little in coming months due to softening of oil prices globally.
While CMIE predicts CAD at 5 percent, RBI estimates to stay within 3 percent of the GDP. The central bank in its September bulletin has put its weight behind the India’s export performance, return of portfolio flows and sustained increase in foreign direct investment. It also predicted that the country will achieve the export target of $750 billion for goods and services for 2022-23.
The widening of current account deficit has depreciated the Indian rupee against the US dollar by 6 per cent since January of 2022, and which is hovering between 79-81 mark since late July. This has affected India's import bill fueling domestic inflation which continues to breach RBI's comfort zone.
Although some parameters has shown hope for our economy. As mentioned above, merchandise exports has increased to a record high and services exports for the first time achieve the targeted of USD 250 billion in the 2021-22 financial year. Inflation and price index remains stagnated, while industrial production is increasing.
