India's current account deficit is likely to hit a three-year high of 1.8%, or $43.81 billion, in FY22 compared with a surplus of 0.9%, or $23.91 billion, in FY21, India Ratings said in a report on Thursday.
The current account deficit (CAD) had moderated to $17.3 billion, or 1.96% of GDP, in the fourth quarter of FY22 as against ₹8.2 billion, or 1.03%, a year earlier, and significantly lower from the $23.02 billion, or 2.74%, seen in Q3, which was a 13-quarter high, according to an assessment by the rating agency,
The boost to the key numbers is due to the improvement in merchandise exports in FY22 when they grew 42.4% compared with the 7.5% contraction in the pandemic-hit FY21.
The financial year FY23 has so far been encouraging as exports grew 22.9% in April-May. But if the Ukraine war lingers on, which could lead to stagflation in the developed world and continued supply chain disruptions, it could hit exports, the agency warned.
The 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 lifetime high of $421.8 billion in FY22, up from $296.3 billion in FY21, a growth of 42.4%.
Key commodities such as petroleum products, iron & steel, aluminium and its products, pearls, precious and semi-precious stones, sugar, motor vehicles, and cotton yarn contributed roughly 72.2% to export growth, growing in the range of 14–158% in value terms in Q4.
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 said, 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 the 4.7% forecast earlier.
The world trade body pegged 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 the 4.5% and 6.8%, respectively, forecast earlier.
Moreover, the rupee is expected to average at 77.1 against the US dollar in Q1, down 4.5% over Q1 FY22.
On the other hand, India's merchandise imports are expected to accelerate on the back of escalated commodity prices and rupee depreciation in FY23.
Merchandise imports grew 44.1% during April-May 2022 to $120.9 billion and are expected to touch $182.9 billion.
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.
