current account deficit: April-June current account deficit could hit 36-quarter high, says India Ratings

CAD in June quarter may come in at 3.4 per cent of GDP, or $28.4 billion, the agency said. It may be noted that the comparable quarter a year ago had seen a 0.9 per cent surplus.

In Q1 of FY22, the current account surplus was USD 6.6 billion or 0.9 per cent of GDP when India was hit by the second wave of the pandemic.

The deficit stood at a moderate 1.5 per cent or USD 13.4 billion in the March 2022 quarter.

“As a share of GDP, the current account deficit is expected to jump to a 36-quarter high after the 1QFY14 when it was 4.7 per cent. In absolute terms, it will be at a 38-quarter high after 3QFY13 when the deficit was $31.8 billion,” the agency said in a note.

Although merchandise exports touched a record high of $121.2 billion in Q1FY23, outward shipments are likely to slow down and come in at $104.2 billion in Q2FY23, growing by a meagre 1.4 per cent in Q2 due to global headwinds.

The International Monetary Fund in July slashed the forecast for global GDP growth to 3.2 per cent in 2022 from the earlier 3.6 per cent. Also, GDP forecasts of some of India’s key exporting destinations such as the US, Eurozone and China also revised downwards, which may put the country’s export target of $750 billion (goods and services) for FY23 in jeopardy, the report noted.

On the other hand, the agency expects imports to remain robust due to elevated global commodity prices (Brent crude averaged $100.7/barrel) in August and a weak rupee, which it sees averaging at 79.6 to a dollar in Q2.

Furthermore, merchandise imports, which grew 40.5 per cent on-year during July-August 2022 to $128.2 billion, are expected to jump to $192.2 billion in Q2FY23, a growth of 30.3 per cent and the overall trade deficit to come to hit a fresh high of $87 billion in Q2.

Merchandise exports reached $121.2 billion, up from $95.5 billion in Q1FY22 and from $117.0 billion in Q4FY22.

Growth slowdown and high inflation in advanced economies coupled with disruptions in the global supply chains have begun to impact exports as it grew at a tepid 1.9 per cent in July-August 2022.

Inputs from PTI & other agencies