Goldman Sachs sees remittances keeping CAD lower in 2023: Report

The country's current account deficit may narrow to 1.4 per cent of GDP or $50 billion in 2023 as compared to 2.4 per cent in the previous year as net remittances flows are expected to be $104 billion, a Goldman Sachs report said.

“With almost $110 billion in gross remittance receipts (3.2 per cent of GDP in 2022), India was one of the highest recipients of remittances globally,” the report said.

“Given these tailwinds from our estimate of: a) higher remittance inflows, b) higher services trade surplus, and c) a lower goods trade deficit, we revise our CY23 current account deficit forecast significantly lower to $50 billion or 1.4 per cent of GDP,” Goldman Sachs said.

Remittance share from countries in West Asia, which account for 54 per cent of Indian workers abroad, has risen 10 percentage points in share from 2010 to 58 per cent in 2021, while the share of United States and Canada have remained stable at 22 per cent. West Asia nations include the UAE, Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain.

“Based on the empirical analysis, and assuming average Brent oil price of $88/bbl for CY23, we estimate remittance receipts to range between $111 billion and $123 billion. Assuming remittance outflow of 9 per cent of receipts (based on 2017-2022 average), we estimate net remittances to range from $101-$112 billion for CY23. We assume a slightly conservative estimate of net remittances at $104 billion in our forecasts,” the report said.

Despite an improved external situation, Goldman expects rupee to underperform Asian peers.

“We believe appreciation pressures on the rupee will likely be capped since we expect the RBI to lean against any inflows, and replenish forex reserves. Further, unsterilized forex market interventions by the RBI can also help ease rupee liquidity crunch in the domestic banking system, which is likely to continue into the year-end, as we expect some maturities of dollar loans by Indian companies to get re-financed in the onshore market, keeping domestic interest rates tight,” Goldman said.

The country’s foreign exchange reserves were at close to $596 billion on May 5, 2023, up $33 billion in 2023 so far.

After depreciating 7.8 per cent in FY22, rupee has fallen 0.26 per cent in the current financial year so far with the bulk of the weakness witnessed in this month.

On Wednesday, rupee closed the day at 82.22/$ as compared to the previous close of 82.39/$. In May, the Indian unit depreciated 0.68 per cent against the dollar.