India’s current account deficit (CAD) in the first three months of this fiscal may have widened to a 36-quarter high of 3.4% of gross domestic product (GDP), driven by elevated trade deficit, India Ratings said on Friday. In absolute terms, the expected CAD of $28.4 billion in the June quarter would be at a 38-quarter high.
The country had achieved a current account surplus of 0.9% in the June quarter of the last fiscal, as imports had taken a nock due to the second Covid wave.
As for the second quarter, rating agency ICRA recently projected the CAD to worsen to 5% of the GDP in the September quarter, the second-highest level since Q3FY12. The monthly average trade deficit in July and August has trended higher at $29.3 billion, against $23.5 billion in the June quarter. This was driven by strong domestic demand, which led to a surge in the imports while exports remained subdued amid international slowdown fears.
India Ratings has already trimmed its FY23 economic growth forecast for the country to 6.9% from 7% estimated earlier.
While merchandise exports had hit a record $121.2 billion in the first quarter, the agency expects the outbound shipments to grow by a meagre 1.4% in the September quarter and come in at $104.2 billion, given the external headwinds. Already, global growth is expected to take a hit (the International Monetary Fund has already trimmed its forecast of world growth to 3.2% in 2022 from 3.6% earlier), with key economies witnessing a sharp slowdown in growth. “This may put India’s exports targets of $750 billion (goods and services) for FY23 in jeopardy,” India Ratings said.
On the other hand, the agency expects merchandise imports to remain robust due to elevated global commodity prices (Brent crude averaged $100.7/barrel in August) and weak rupee. Imports growth will remain elevated at 30.3% from a year before in the September quarter. Consequently, merchandise trade deficit will likely hit a record $87 billion in Q2FY23, it added.