BBN Bureau
MUMBAI/March 15-2022: India Ratings and Research (Ind-Ra) expects the current account deficit (CAD) for the third quarter of the current year (Q3, FY22)) to come in at the second-highest level or 13-quarter high of $23.6 billion (2.8 per cent of GDP).
This is against a deficit of $9.6 billion (1.3 per cent of GDP) in Q2, QFY22 and $2.2 billion or 0.3 per cent of GDP for the third quarter a year ago.
Although the omicron-led COVID wave has subsided, the geopolitical risks to the global recovery have increased due to the Russia-Ukraine conflict.
The direct effects of this conflict have pushed the commodity prices (crude oil prices have been on a boil) and freight and transportation costs higher.
In addition, the Indian rupee (INR), which averaged Rs75 against the dollar in February 2022, is expected to average around Rs76 in March 2022, which might result in a depreciation of 0.29 per cent in Q4, FY22 over Q3, FY22.
All-time high imports
Ind-Ra said it believes that despite the adverse effects of the Russian-Ukraine conflict, the merchandise imports are likely to recover further due to the normalising domestic economy, higher commodity prices and depreciation of Indian rupee, pushing the merchandise imports bill to over $166 billion in Q4, FY22.
The FY22 merchandise import bill is estimated to be an all-time high of over $606 billion, according to Ind-Ra. However, the rating agency believes merchandise exports might be constrained to $101.3 billion in Q4, FY22, taking the merchandise exports to $406 billion in FY22.
As a result, the merchandise trade deficit is likely to come at $200 billion in FY22. All in all, CAD is expected at over $25 billion in Q4, FY22.
Merchandise exports in Q3, FY22 grew 41 per cent year-on-year (yoy) to $106.8 billion, taking the 9M, FY22 level to $305.1 billion.
Exports in January-February 2022 grew 23.8 per cent yoy. To achieve the export target of $400 billion in FY22, exports will have to attain the level of $22.61 billion in March 2022 (same period last year: $35.25 billion).
Given the trend so far in this fiscal, the exports appear to be on track to breach the $400 billion target, despite the heightened geopolitical risk due to the Russia–Ukraine conflict.
Good prospects for wheat exports
Russia and Ukraine contribute nearly one-fourth to the global wheat supplies; the conflict thus has brightened the prospects of wheat exports from India.
Key commodities such as petroleum products, iron & steel, aluminium & its products, organic chemicals, gold & other precious metal jewellery, cotton yarn, pearl & other stones and wheat contributed roughly 66.7 per cent to the merchandise exports growth.
