New Delhi: India’s current account deficit (CAD), the gap between the value of goods and services imported by the country and its exports, is expected to be at around $10 billion during the first three months (April-June 2023) of the current financial year. According to an analysis carried out by India Ratings and Research (a Fitch Group rating agency), at this level, the current account deficit would be at 1 percent of the country’s GDP.
As per the data analysed by the rating agency, the current account deficit would be higher than the previous quarter (Jan-March 2023 period) when it was estimated at just $1.4 billion, 0.2 percent of the GDP but it will be lower than in comparison with the country’s current account deficit during the same period of the last financial year – the first quarter of the previous financial year.
In the first quarter of the previous fiscal, the current account deficit was estimated at around $18 billion which was 2.1 percent of the GDP. However, the agency expects that the current account deficit will further rise from the current level.
“India Ratings expects the current account deficit could rise further in the second quarter of FY 2023-24. The global economic environment remains uncertain amid concerns of higher-than-expected monetary tightening by central banks in advanced economies and a weaker economic recovery in China,” said Paras Jasrai, Senior Analyst, India Ratings.
Highlighting the further risk to the global economy due to the disturbances caused by extreme climatic conditions, Jasrai says there has been an additional risk of extreme weather events playing out in different countries (owing to El-Nino), which has led to an uptick in the prices of energy and some of the food commodities.
Moreover, the high-frequency indicators such as the Global Purchasing Managers Index (PMI) are not encouraging either and were in contraction mode even in July this year.
Merchandise exports to dip below $100 billion
Paras Jasrai says the agency expects the merchandise exports to dip below $100 billion after a gap of eight quarters in the second quarter of the current financial year. On the other hand, India’s merchandise imports are expected at around $163 billion during the same period, up from a seven-quarter low of $160.3 billion in the first quarter. It will mainly be on account of the increase in crude oil prices since July this year.
“All in all, India Ratings expects the goods trade deficit to come in at a three-quarter high of $64 billion in the second quarter of the current financial year.
Services export to moderate
The problem is not only limited to the fact that the country’s merchandise export would decline to below $100 billion in the current quarter, another problem is that India’s services exports has also witnessed some moderation since June 2023 due to the slowdown in global economic activity. The global services PMI stood at a five-month low of 52.7 in July 2023. Therefore the agency expects the services trade surplus to remain around $36 billion in the second quarter of this fiscal.
