Current account deficit expected to reach 3.4% in Apr-June: India Ratings

Merchandise exports touched a record high of $121.2 bn in Q1FY23, outward shipments are likely to slow down and come in at $104.2 bn in Q2FY23, growing by a meagre 1.4% in Q2 due to global headwinds

India Ratings expects the current account deficit to hit a 36-quarter high of 3.4 per cent of GDP or USD 28.4 billion in the June quarter, against a 0.9 per cent surplus a year ago.

In the March 2022 quarter, the deficit was a moderate 1.5 per cent or USD 13.4 billion, while in Q1FY22 the current account surplus was USD 6.6 billion or 0.9 per cent of GDP when the country was hit by the second wave of the pandemic, according to the agency.

As a share of GDP, the current account deficit is expected to jump to a 36-quarter high after the 1QFY14 when it was 4.7 per cent. In absolute terms, it will be at a 38-quarter high after 3QFY13 when the deficit was USD 31.8 billion, India Ratings said in a note on Monday.

Although merchandise exports touched a record high of USD 121.2 billion in Q1FY23, outward shipments are likely to slow down and come in at USD104.2 billion in Q2FY23, growing by a meagre 1.4 per cent in Q2 due to global headwinds.

The International Monetary Fund in July slashed the forecast for global GDP growth to 3.2 per cent in 2022 from the earlier 3.6 per cent. Also, GDP forecasts of some of India's key exporting destinations such as the US, Eurozone and China also revised downwards, which may put the country's export target of USD 750 billion (goods and services) for FY23 in jeopardy, the report noted.

On the other hand, the agency expects imports to remain robust due to elevated global commodity prices (Brent crude averaged USD 100.7/barrel) in August and a weak rupee, which it sees averaging at 79.6 to a dollar in Q2.

Furthermore, merchandise imports, which grew 40.5 per cent on-year during July-August 2022 to USD128.2 billion, are expected to jump to USD192.2 billion in Q2FY23, a growth of 30.3 per cent and the overall trade deficit to come to hit a fresh high of USD87 billion in Q2.

Merchandise exports reached USD 121.2 billion, up from USD 95.5 billion in Q1FY22 and from USD 117.0 billion in Q4FY22.

Growth slowdown and high inflation in advanced economies coupled with disruptions in the global supply chains have begun to impact exports as it grew at a tepid 1.9 per cent in July-August 2022.