CAD may have swelled to 37-quarter high of 4.4% of GDP in Q2: Ind-Ra

‘Falling exports and high crude prices likely impacted current account deficit’

December 14, 2022 09:35 pm | Updated 09:37 pm IST - Mumbai

Falling exports and high crude prices are set to push up the current account deficit (CAD) in the second quarter to a 37-quarter high of 4.4% of GDP at $36 billion as against $9.7 billion or 1.3% in the year-earlier period, according to an assessment by India Ratings (Ind-Ra).

As a percentage of GDP, the previous high was in the first quarter of 2013-14 when the CAD had scaled to 4.7%, but in absolute terms the previous high was in the third quarter of 2012-13 when it touched 31.8 billion.

In the first quarter of this fiscal, the deficit was 23.9 billion or 2.8%.

Global headwinds facing merchandise exports had shipments contracting by close to 20% in October 2022, the first time since February 2021 and the agency said it expected merchandise exports to slip to an eight-quarter low of 88.2 billion in Q3 of this fiscal, which would be 17.4% lower than the year-earlier period.

On the other side, falling commodity prices will help the country lower its import bill in the third quarter (Q3), even though crude prices were still 19.9% in October-November. The agency said it expected merchandise imports to decelerate to a three-quarter low of $171.9 billion in Q3, but would still be 2.9% higher on-year.

Overall, merchandise trade deficit will rise to a fresh high of $83.7 billion in Q3, which is 38.9% higher than Q3FY22, according to its estimate.

The agency expects the rupee to average 81.8 against the U.S. dollar, up 9.1% in Q3, further putting pressure on the CAD.

As against this, merchandise exports stood at a three-quarter low of $112.5 billion in Q2FY23, compared with $121.1 billion in Q1 due to the impact of global headwinds such as the Russia-Ukraine conflict, global growth slowdown and elevated inflation.

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