India Ratings & Research (Ind-Ra) estimates the current account deficit (CAD) to have widened to $28.4 billion (3.4 per cent of GDP) in April-June quarter (1QFY23), against a deficit of $13.4 billion (1.5 per cent of GDP) in January-March quarter (4QFY22). This would be 36 quarters high in terms of share in GDP and 38 quarters high in absolute value terms.

India recorded surplus of $6.6 billion (0.9 per cent of GDP) in April-June quarter of FY22. The CAD or a deficit on the current account means more import of goods and services than it exports implying higher dollar demand, which in turn, would push the value of rupee down. In other words, higher CAD is expected to weaken the rupee against dollar.

According to Ind-Ra, although the merchandise exports touched a record high of $121.2 billion in 1QFY23, they are likely to slow down and come in at $104.2 billion in 2QFY23, growing by a meagre 1.4 per cent.

The International Monetary Fund in its July update on the World Economic Outlook trimmed its forecast for global GDP growth to 3.2 per cent in 2022 from 3.6 per cent. Also, GDP forecasts of some of India’s key exporting destinations such as the US, Eurozone and China have been revised downwards.

Now, Fitch is apprehending the UK and Eurozone to enter recession while the US might face mild recession next year. All these are likely to affect India’s exports target of $750 billion (goods and services) for FY23 in jeopardy.

On the other hand, Ind-Ra expects merchandise imports to remain robust due to i) elevated global commodity prices (Brent crude averaged August 2022: $100.7/barrel) and ii) weak rupee. The agency expects the Indian rupee to average ₹79.6 against the $ in 2QFY23. Furthermore, the merchandise imports, which grew 40.5 per cent during July-August 2022 to $128.2 billion, is expected to come in at $192.2 billion in 2QFY23, increasing by 30.3 per cent. All in all, Ind-Ra expects “the merchandise trade deficit to come in at a fresh high of around $87 billion in 2QFY23.”

Key commodities such as petroleum products, telecom instruments, ready-made garments cotton inclusive accessories, wheat, sugar, articles of iron & steel, gold and other precious metal jewellery, motor vehicles and aluminium & its products accounted for more than 80 per cent of the merchandise exports growth in 1QFY23. While the volumes of these commodities grew in the range of 5.7-200.1 per cent y-o-y, the value growth ranged between 28-268.3 per cent y-o-y. This indicates that the value growth in the merchandise exports was more pronounced than the volume in 1QFY23 as has been the case in the previous few quarters.

The agency noted that the fourfold increase in telecom instruments exports volume in 1QFY23 is a positive development. The push came from a higher demand from Hong Kong, the UAE, the US, China, Vietnam, Germany and South Korea.

India’s wheat exports benefited due to the Russia-Ukraine war as the warring countries accounted over 25 per cent of the global wheat exports in 2021. India’s wheat export volume quadrupled in 1QFY23 with the wheat demand coming from South Korea, Indonesia, Yemen, the UAE, Thailand, Philippines and Oman.

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