On Tuesday, Bank of America Securities (BofA) in a report said, "India's current account deficit will likely touch USD 105 billion, or 3 per cent of the GDP this fiscal, mainly due to the continuously widening trade deficit," PTI reported.
BofA revised upwards its current account deficit forecast by 0.4 percentage points for this financial year. It also cut the capital account (BoP) surplus forecast to USD 60 billion from the previous projection of over USD 75 billion, citing the continuing FPI outflows, which have touched USD 17 billion so far in 2022.
The trade deficit in June widened to a record high of USD 25.6 billion, up from USD 24.3 billion in May. On a quarterly basis, the gap increased 122.8 per cent in the June quarter to USD 70.33 billion from USD 31.43 billion in the year-ago period.
The continuously widening trade deficit warrants a re-look at BofA's CAD estimate, the report said.
Although we continue to see Brent at USD 105 per barrel in 2022, higher non-oil, non-gold imports and lower exports are now likely to push CAD to 3% at USD 105 billion, up from 2.6 per cent of GDP or USD 90 billion previously projected," according to BofA Securities analysts.
The delta wave resulted in an unusually low trade deficit in Q1 FY22. In FY23, higher gold and oil imports have led to a sharp increase in the trade deficit so far, they noted.
Total exports increased 22.1 per cent to USD 116.66 billion in the June quarter, up from USD 95.54 billion the previous year. Total imports increased 47.3 per cent year on year to USD 186.99 billion from USD 126.97 billion during the same period.
This resulted in a trade deficit of USD 70.33 billion, up from USD 31.43 billion in Q1 FY22 due to the deadly second wave of the pandemic.
During Q1, oil exports jumped 88.1 per cent to USD 24.25 billion and non-oil exports inched up 11.8 per cent to USD 92.42 billion. Oil imports soared 94.3 per cent to USD 60.06 billion, primarily due to the Russia-Ukraine war and oil cartel Opec's pre-war decision to cut supplies.
The report noted that continuing FPI outflows warrant a re-look at capital account surplus and projected the Balance of Payments (BoP) deficit at USD 45 billion or 1.3 per cent of GDP in FY23.
Slowing global growth will also pose a downside risk to the services export estimate, but the recent tick down in global commodity prices is a meaningful risk to watch out for on the other hand, it added.
On Tuesday Rupee hit a record low of 79.64 against the US dollar, amid persistent foreign portfolio outflows and a broadly stronger dollar. RBI last week took a few steps to increase foreign exchange inflows in the face of a massive dollar shortage.
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