Mumbai: The country’s current account deficit (CAD) widened to a nine-year high of 4.4% in Q2 of FY23 Gross Domestic Product, or $36.4 billion in absolute terms. In terms of value, quarterly scurvy The highest in more than a decade and higher than the $35 billion forecast by economists.
The current account reflects the net position after recording the value of goods and services exports and capital inflows. It has historically been in deficit due to India’s dependence on oil imports. But the Q2 deficit has been exceptionally high due to a jump in oil and commodity prices and a slowdown in exports in the wake of the Ukraine war.
Q2FY23 CAD is almost double from $18.2 billion (2.2% of GDP) in Q1FY23 and almost four times from $9.7 billion (1.3% of GDP) in Q2FY22. The wider CAD is negative for the rupee as it reflects a shortage of foreign exchange. However, the impact on market sentiment is high due to delay in reporting.
RBI said the widening CAD to $83.5 billion from $63 billion in Q1FY23 was due to widening of trade deficit and increase in net expenditure under investment income.
ICRA Chief Economist Aditi Nair “While it was expected that India’s current account deficit would widen to an all-time high in Q2 of FY2023, the size of the deficit is also at the upper end of our forecast range of $31-34 billion,” said Negative surprises in the merchandise trade deficit and primary income exceed expectations, with a services surplus and secondary income flows higher than expected.” Nair said she remains optimistic that the CAD will narrow to $25-28 billion in the third quarter due to a decline in the average trade deficit in October and November. “We project FY23 CAD at an unattainable $115 billion of GDP.”
According to Madhavi Arora, principal economist at MK Global, the worst is over as far as CAD is concerned as global commodity prices have eased. “We see CAD for FY23 at 3.4% of GDP for the financial year ending March.”
The current account reflects the net position after recording the value of goods and services exports and capital inflows. It has historically been in deficit due to India’s dependence on oil imports. But the Q2 deficit has been exceptionally high due to a jump in oil and commodity prices and a slowdown in exports in the wake of the Ukraine war.
Q2FY23 CAD is almost double from $18.2 billion (2.2% of GDP) in Q1FY23 and almost four times from $9.7 billion (1.3% of GDP) in Q2FY22. The wider CAD is negative for the rupee as it reflects a shortage of foreign exchange. However, the impact on market sentiment is high due to delay in reporting.
RBI said the widening CAD to $83.5 billion from $63 billion in Q1FY23 was due to widening of trade deficit and increase in net expenditure under investment income.
ICRA Chief Economist Aditi Nair “While it was expected that India’s current account deficit would widen to an all-time high in Q2 of FY2023, the size of the deficit is also at the upper end of our forecast range of $31-34 billion,” said Negative surprises in the merchandise trade deficit and primary income exceed expectations, with a services surplus and secondary income flows higher than expected.” Nair said she remains optimistic that the CAD will narrow to $25-28 billion in the third quarter due to a decline in the average trade deficit in October and November. “We project FY23 CAD at an unattainable $115 billion of GDP.”
According to Madhavi Arora, principal economist at MK Global, the worst is over as far as CAD is concerned as global commodity prices have eased. “We see CAD for FY23 at 3.4% of GDP for the financial year ending March.”