India's current account deficit seen swelling to a a 37-quarter high in Q2
Falling exports and high crude prices are set to push up current account deficit (CAD) in the second quarter to a 37-quarter high of 4.4 per cent of GDP at $36 billion as against $9.7 billion or 1.3 per cent in the year-ago period, estimates a report.
As a percentage of GDP, the previous high was in the first quarter of 2013-14 when CAD had scaled to 4.7 per cent, but in absolute terms the previous high was in the third quarter of 2012-13 when it touched $31.8 billion.
In the first quarter of this fiscal the deficit was $23.9 billion or 2.8 per cent, according to an assessment by India Ratings.
Global headwinds facing merchandise exports had the shipments contracting by close to 20 per cent in October 2022, first time since February 2021 and the agency expects merchandise exports to slip to an eight-quarter low of $88.2 billion in Q3FY23 which would be 17.4 per cent lower than Q3FY22.
On the other side, falling commodity prices will help the country lower its import bill in the third quarter (Q3), even though crude prices were still 19.9 per cent in October-November.
And the agency expects merchandise imports to decelerate to a three-quarter low of $171.9 billion in Q3, but will still be up 2.9 percent on-year.
Overall, merchandise trade deficit will rise to a fresh high of $83.7 billion in Q3, which is 38.9 per cent higher than Q3FY22, according to its estimate.
The agency expects the rupee to average 81.8 against the dollar, up 9.1 per cent in Q3, further putting pressure on CAD.
As against this merchandise exports stood at a three-quarter low of $112.5 billion in Q2FY23, up from $121.1 billion in Q1 due to the impact of global headwinds such as the Russia-Ukraine conflict, global growth slowdown and elevated inflation.