Economy News

Current Account Deficit May Hit 3-Year High In 2021-22: Report

Country’s current account deficit is likely to hit a three-year high of 1.8 per cent or $43.81 billion in 2021-22

Mumbai: 

Country’s current account deficit (CAD) is likely to hit a three-year high of 1.8 per cent or $43.81 billion in 2021-22, as against a surplus of 0.9 per cent or $23.91 billion in 2020-21, a report said on Thursday.

According to an assessment by India Ratings, CAD has moderated to $17.3 billion or 1.96 per cent of GDP in the fourth quarter of 2021-22 as against $8.2 billion or 1.03 per cent in the year-ago period, and massively down from $23.02 billion or 2.74 per cent in third quarter, which was a 13-quarter high.

The improvement in the key numbers are due to the remarkable improvement in merchandise exports in 2021-22, when it grew 42.4 per cent as against a negative 7.5 per cent in the pandemic-hit 2020-21.

But exports could face significant headwinds from rising uncertainty and volatility in the global economy primarily because of the spike in commodity prices, especially crude oil after Russia invaded Ukraine, the report warned, and pointed to the lower forecast of global growth by the World Trade Organisation (WTO) which sees the global economy clipping at just about 3 per cent in 2022, down from 4.7 per cent forecast earlier.

The world trade body has pegged the import growth for India’s key exporting partners such as North America and Europe at 3.9 per cent and 3.7 per cent, respectively, in 2022, lower than 4.5 per cent and 6.8 per cent, respectively, forecast earlier.

However, higher oil prices will benefit oil exporting countries such as Saudi Arabia, which will lead to higher real incomes, and thus, higher import demand which is expected to increase by 11.7 per cent in 2022 from 8.7 per cent forecast earlier.

On the other hand, India’s merchandise imports are expected to accelerate on the back of escalated commodity prices and rupee depreciation in 2022-23.

The agency expects merchandise exports to come in at $112.5 billion, growing by 17.7 per cent in the first quarter of 2022-23, up 85.7 per cent over the same quarter last fiscal.

Merchandise imports grew 44.1 per cent during April-May 2022 to $120.9 billion and are expected to stand at $182.9 billion.

Moreover, the rupee is expected to average at 77.1 against a US dollar in first quarter, down 4.5 per cent over first quarter of 2021-22.

Notwithstanding the high base effect of fourth quarter of 2020-21, up 20.4 per cent, merchandise exports in fourth quarter of 2021-22 grew 29.2 per cent to a record $116.8 billion.

Import volumes of top exporting partners such as the US and Europe rose 9.7 per cent and 8.3 per cent, respectively, in fourth quarter. As a result, overall exports crossed the $400-billion target, scaling a life-time high of $421.8 billion in 2021-22, up from $296.3 billion in 2020-21, a growth of 42.4 per cent, as against a negative 7.5 per cent in 2020-21.

2022-23 so far has been encouraging as exports grew 22.9 per cent in April-May. But if the Ukraine war lingers on, which can lead to stagflation in the developed world and continued supply chain disruptions, can hit exports, the report warned.

Key commodities such as petroleum products, iron & steel, aluminium & its products, pearls, precious and semi-precious stones, sugar, motor vehicles and cotton yarn contributed roughly 72.2 per cent to exports growth, growing in the range of 14-158 per cent in value terms in fourth quarter.

Gold imports declined 54 per cent in fourth quarter after seven quarters as demand fell by the same level in the quarter due to the onset of the third wave of the pandemic. 

Source:ndtv.com

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