India's CAD expected to reach $100 bn in FY2023: ICRA

Statistics reveal that a sharper year on year (YoY) rise in imports (+45.5 per cent) relative to exports (+25.5 per cent) in April-May FY2023 has increased more than two-fold India’s merchandise trade deficit –– from $21.8 billion in April-May FY2022 to $44.4 billion. This was also partly due to a boost in gold imports. Moreover, the YOY growth of imports is projected to overtake that of exports in FY2023. “India witnessed a drawdown of reserves amounting to $16.0 billion in the quarter after witnessing an accretion in each of the preceding 12 quarters,” ICRA, a Moody’s Investors Service Company, said in its report.

“The YoY increase in merchandise exports was primarily driven by a low base related to the impact of second Covid wave in India and associated state-level restrictions, as well as the YoY increase of ~63 per cent in international crude oil prices engendered by the Russia-Ukraine conflict,” ICRA said in its External Sector Outlook report titled ‘India’s CAD trailed expectations in Q4 FY2022; estimated at $100 billion or 2.9 per cent of GDP in FY2023’.

It is anticipated that exports will go down as a consequence of moderate growth in world trade volumes even as geopolitical tensions simmer. Appreciation of the Indian rupee by 2.5 per cent compared to the Chinese yuan for FY2023 could negatively impact Indian exports of products like textiles and agricultural goods. Also, tea and apparel exports in India may accrue benefit since the supply of these items is affected by the present economic crisis in Sri Lanka, the ICRA report said.

Even as the value of Indian rupee sank to 78.38 relative to the US dollar on June 22, 2022, generous forex reserves and the RBI’s outstanding forward position ($63.8 billion in April 2022) will most probably avert a tumultuous depreciation of the rupee. Regardless, a further increase in crude oil prices could potentially bring down the rupee, the report added.

ALCHEMPro News Desk (NB)