Current account deficit widens to 2.7% of GDP; what next for economy?

India's current account deficit has widened from $23 billion in October to December versus $2 billion in the previous year. This is 2.7 percent of the GDP and it does not factor in the crude price hike over the last two months.

The current account deficit for October, November, December is a high of $23 billion, normally, a year ago, it was only $2 billion. This was always expected to be high because the trade deficit - the difference between imports and exports for all those months of October, November, December was very high.

In terms of the percentage of GDP, 2.7 is a little bit of discomfort for the Reserve Bank which wants it to be less than 2.50 percent historically.

The bigger worry is that the current account deficit is 2.7 percent even before the rise in crude oil prices. Crude oil prices have shot up above $100 per barrel. Therefore the chances are that the CAD for the current quarter ended on March 31 is likely to be over 3 percent in terms of current account deficit and that may be a problem for next year as well FY23.