January 22, 2023

Source: financialexpress.com

The possibility of widening exists despite the improvement in trade deficit recently reported by the Reserve Bank of India. India’s current account deficit, Bajoria believes, may leap to $115 billion (3.3 per cent of GDP) in FY23, from $38.7 billion (1.2 percent of GDP) in FY22.

India’s current account deficit is set to rise as demand slowdown in developed economies hits exports. The country’s current account balance is expected to further widen to roughly $40 billion in Q2FY23, according to Rahul Bajoria, India Economist, Barclays. The possibility of widening exists despite the improvement in trade deficit recently reported by the Reserve Bank of India. India’s current account deficit, Bajoria believes, may leap to $115 billion (3.3 per cent of GDP) in FY23, from $38.7 billion (1.2 percent of GDP) in FY22.

The RBI on Monday reported the goods export at $32.6 billion (3.5 per cent on-year decrease) in September 2022. The imports, on the other hand, grew to $59.4 billion (5.4 per cent on-year increase) during the month. The trade deficit showed signs of consolidation after falling to $26.7 billion in September from $28.7 billion previous month. The current account deficit, as of September 29, reached a decade high of $23.9 billion (2.8 per cent of GDP).

Barclays previously said that the tariffs and other restrictions imposed by the government will push down India’s exports, meanwhile, the elevated commodity prices will boost the import bill. Maintaining the stance in its latest report, Barclays forecasted the current account deficit to widen to $40 billion in Q2FY23. “Lower international commodity prices and some revival in exports helped consolidate the trade deficit in September, albeit modestly. Still, the overall gap remains large, and we see the current account deficit remaining on track to reach $115 billion (3.3% GDP) in FY22-23,” Bajoria said in the report.

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The domestic demand in India, owing to a recovering economy and the festive season, led to the imports to grow, albeit slow. India’s goods import in the September quarter was $59.35 billion, with the energy sector (petroleum, crude, coal) and Gems and Jewellery (Gold, silver, and other precious metals) taking up the maximum share. India’s goods deficit in H1FY23 (April-September) hovered at $149.5 billion, up from $76.3 billion in H1FY22, reflecting an increase of 49 percent on year, RBI reported on Monday.

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