scorecardresearch

Trade deficit widens in April: Where are India’s trade deficit, rupee headed in FY23? experts answer

Barclays says it expects the trade deficit to widen to $250 bln in FY 2023, which would be the largest goods trade deficit on record. While, Kotak Institutional Equities expect the rupee to remain under pressure this year.

India's trade deficit widened in the first month of fiscal year 2023 to $20.07 billion, an increase of over 30 per cent from last year.

India’s trade deficit widened in the first month of fiscal year 2023 to $20.07 billion, an increase of over 30 per cent from last year. India reported an increase in both exports and imports of goods in April in comparison to last year, however, the merchandise exports and imports fell month-on-month. Experts see the ongoing Russia-Ukraine war and US Federal Reserve’s monetary policy tightening measures to continue to put pressure on India’s current account and on rupee’s value. Barclays says it expects the trade deficit to widen to $250 bln in FY 2023, which would be the largest goods trade deficit on record. Kotak Institutional Equities expect the rupee to remain under pressure this year.

Here’s what experts have to say about April’s trade numbers:

Rahul Bajoria, MD & Chief India Economist, Barclays: Trade deficit may widen to record high of $250 bln this year

“Tade activity for FY22-23 has begun on a strong note and elevated international commodity prices could keep trade deficits high over the coming months,” Rahul Bajoria, MD & Chief India Economist, Barclays said. “Exports fell by 9.6% m/m nsa, while imports dropped by a more modest 4.1 per cent.” “While media reports indicate India will initiate oil imports from Russia at discounted prices, India’s oil bill was elevated at USD19.5bn, up almost 80% year-on-year. The ongoing domestic recovery will continue to keep India’s import demand strong, but we could see growth rates moderate.”

“For FY 2023, we expect the deficit to widen to $250 billion, which would be the largest goods trade deficit on record. We expect FY 2022 current account deficit to be $45 billion, which could   widen materially to $105 billion (3 per cent of GDP) in FY 2023. While capital flows are set to remain robust, they will not be sufficient to cover the widening trade deficit. We expect a balance of payment deficit of $20 billion in FY 2023, which could reduce.”

Kotak Institutional Equities: Headwinds for India’s external sector, rupee to remain under pressure amid expected Fed rate hikes

“The external sector will continue facing risks from global factors: (1) uncertainties arising from ongoing geopolitical conflicts reflecting in global commodity prices (including crude prices), and (2) differential pace of monetary policy normalization amid persistence of inflation at high levels globally. Additionally, supply disruptions emanating from China’s Covid situation and resultant restrictions on activities will be weighing on prices and growth in the global economy,” Kotak Institutional Equities said. “We estimate CAD/GDP at 2.4% in FY 2023 (estimated) (assuming average crude price at US$90/bbl) after 1.5% in FY2022E. We continue to expect USD-INR in the range of 75.5-77.5 in the near term.”

“We expect the INR to remain under pressure given expectations of rate hikes by the US Fed along with balance sheet normalization. Further, uncertainties on crude oil prices will also weigh on the INR. However, India’s FX buffer of US$600 bn should help shield the economy against any major external shock. We expect the INR moves to be in line with the rest of the EM pack. We continue to expect the INR to remain in the range of 75.5-77.5 in the near term.”

Aditi Nayar, Chief Economist, ICRA Limited: Goods trade deficit to print above $20 bln in majority of months this fiscal

“While merchandise imports printed in line with our forecast, an encouraging overshooting of exports curtailed the trade deficit to $20.1 billion, below our estimate of US$22.8 billion. Nevertheless, unless commodity prices recede appreciably, we expect the merchandise trade deficit to print above $20 billion in a majority of the months of FY2023,” Aditi Nayar, Chief Economist, ICRA Limited said. “Following the spike in the services trade surplus to a robust record high of US$11.5 billion in March 2022, we now expect the current account deficit to have eased to US$15.5-17.5 billion in Q4 FY2022. We tentatively peg the current account deficit in the range of US$20-23 billion for Q1 FY2023, bloated by higher commodity prices.”

“Although the non-oil trade deficit remained stable, there was a shift in its composition, with a plunge in gold imports being offset by a rise in non-oil non-gold imports such as coal and chemicals, an unsavoury yet expected fallout of the higher commodity prices engendered by the Russia-Ukraine conflict.”

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Most Read In Economy