The country's current account deficit is likely to hit a three-year high of 1.8% or $43.81 billion in FY22, as against a surplus of 0.9% or $23.91 billion in FY21, a report said on Thursday.
According to an assessment by India Ratings, the Current Account Deficit (CAD) has moderated to $17.3 billion or 1.96% of GDP in the fourth quarter of FY22 as against $8.2 billion or 1.03% in the year-ago period, and massively down from $23.02 billion or 2.74% in Q3, which was a 13-quarter high.
The improvement in the key numbers are due to the remarkable improvement in merchandise exports in FY22, when it grew 42.4% as against a negative 7.5% in the pandemic-hit FY121.
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% in 2022, down from 4.7% 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% and 3.7%, respectively, in 2022, lower than 4.5% and 6.8%, 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% in 2022 from 8.7% 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 FY23.
The agency expects merchandise exports to come in at $112.5 billion, growing by 17.7% in the first quarter of FY23, up 85.7% over the same quarter last fiscal.
Merchandise imports grew 44.1% 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 U.S. dollar in Q1, down 4.5% over Q1 FY22.
Notwithstanding the high base effect of Q4 of FY21, up 20.4%, merchandise exports in Q4 of FY22 grew 29.2% to a record $116.8 billion.
Import volumes of top exporting partners such as the U.S. and Europe rose 9.7% and 8.3%, respectively, in Q4. As a result, overall exports crossed the $400-billion target, scaling a life-time high of $421.8 billion in FY22, up from $296.3 billion in FY21, a growth of 42.4%, as against a negative 7.5% in FY21.
FY23 so far has been encouraging as exports grew 22.9% 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% to exports growth, growing in the range of 14-158% in value terms in Q4.
Gold imports declined 54% in Q4 after seven quarters as demand fell by the same level in the quarter due to the onset of the third wave of the pandemic.
