InvestorQ : How come did the current account deficit for the March quarter narrow as compared to the December 2021 quarter?
Debbie Mascarenhas made post

How come did the current account deficit for the March quarter narrow as compared to the December 2021 quarter?

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Arti Chavan answered.
2 months ago
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You are right that the current account numbers for the March quarter were fairly encouraging. Normally, the RBI announces the current account numbers on the last day of the month, but this time the current account and the balance of payment data were put out by the RBI well in advance. Of course, while the data is positive, that is more because the real impact of the Ukrainian war and the China lockdowns will only manifest in the June quarter, but we shall come back to that point later in the day.

Let us quickly run you through the current account number. The current account deficit in absolute terms for March 2022 quarter came in sharply lower by $7.76 billion compared to December 2021 quarter. In other words, the current account deficit which was almost 2% of GDP in the December 2021 quarter is now just about 1.2% of GDP in March 2022 quarter. The lower CAD in the March 2022 quarter was driven by number of factors, chief among them being the narrowing of the merchandise trade deficit on a sequential basis.

However, it was not just about the narrowing of the trade deficit. While the imports were still higher, exports managed to keep pace. IN addition, the surplus on the services trade account was higher. The services trade surplus was largely led by a surge in software export revenues in the quarter on the back of sustained technology spending by the large US and European corporations. There was also a benefit of $3.5 billion as the outflows on account of interest and dividend to external parties in the March quarter also trended lower.

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