India’ current account deficit is likely to rise to $115 billion in July-September quarter of FY23, on the back of the revival in domestic demand, high commodity prices, Rahul Bajoria, MD & Head of EM Asia, Barclays, said. Witnessing the current trends in commodity prices, the goods trade deficit is expected to cross $265 billion by the end of this year. Given the revival in the domestic demand and the elevation in commodity prices, primarily in the energy sector, the current account deficit is expected to increase.
The Reserve Bank of India (RBI), on Thursday, released the current account deficit for India for April-June 2022. At 2.8 per cent of GDP, the current account deficit in the first quarter of FY23 was at $23.9 billion, much higher than the $13.4 billion (1.5 per cent of GDP) in the fourth quarter of FY22. Underlying the current account deficit in Q1FY23 was the widening of the merchandise trade deficit to US$ 68.6 billion from US$ 54.5 billion in Q4FY22 and an increase in net outgo of investment income payments, RBI noted. The widening of the current account deficit in April-June 2022 was led by a steady yet continued increase in the goods trade deficit.
The Foreign Direct Investments (FDI) inflows remained robust at $13.6 billion, as compared to $11.6 billion a year ago. The central bank reported outflows of the net foreign portfolio investment at $14.6 billion. In addition, the foreign exchange reserves saw a growth of $4.6 billion in the June quarter FY23, as compared to the depletion of the reserve by $16 billion in the March quarter of FY22. Rahul Bajoria of Barclays said that India is showing growth despite a grave global scenario. “This could lead to a risk of a wider current account deficit and the inflation running higher than the average over the cycle,” he added. The increase in trade deficit can also be substantially attributed to the jump in oil prices and a rise in crucial raw materials such as coal.
The RBI monetary policy committee on Friday, decided to increase the policy repo rate by 50 basis points to 5.9 per cent. The decision was in line with the central bank’s aim to tame inflation and achieve the medium-term target of 4 per cent with a bandwidth of +/- 2 per cent. The CPI inflation rose to 7 per cent on-year in August 2022 from 6.7 per cent in July this year.