The capital account seems under considerable stress amidst massive outflow pressures from portfolio investors
Download ReportQ4 FY22 BoP - Capital account under stress
India’s Q4 FY22 current account deficit gap of 1.5% of GDP provides comfort as it remains close to the medium-term trend and relatively better than the 2.0-2.5% sustainable level from a long-term funding perspective. However, there are latent fissures in the form of higher merchandise trade deficit vis-à-vis pre COVID levels. More importantly, the capital account seems under considerable stress amidst massive outflow pressures from portfolio investors. This resulted in the worst BoP deficit since the Taper Tantrum quarter in 2013. Going into FY23, the pressure on BoP would persist as the current account deficit widens to 3.0% of GDP. A fragile geopolitical environment coupled with a rapidly rising global interest rate backdrop does not augur well for capital account flows. We expect India to register a BoP deficit of USD 35 bn in FY23. At -1.0% of GDP, this would be the worst BoP deficit since the 2008 Global Financial Crisis