India's current account deficit forecast at $10 bn in Q1 FY24: Ind-Ra

Notably, high-frequency indicators such as the Global Purchasing Managers Index (PMI) have shown contraction as of July 2023. Based on these, merchandise exports are projected to slip below $100 billion in Q2 FY24 after staying above that level for eight quarters. On the other hand, merchandise imports are expected to rise to around $163 billion from a seven-quarter low of $160.3 billion, mainly due to an increase in crude oil prices since July 2023. Consequently, the goods trade deficit is projected to reach a three-quarter high of $64 billion in Q2 FY24, as per Ind-Ra.

The agency further reports that merchandise exports have already contracted by 14.1 per cent year-on-year in Q1 FY24, marking the most significant decline in 12 quarters. Despite volume growth ranging between 4.2 per cent and 170 per cent, the total export value stood at $104 billion—short of Ind-Ra's expected $106 billion.

Merchandise imports have also shrunk, coming in at a seven-quarter low of $160.3 billion, in line with Ind-Ra's expectations. This reflects a 12.7 per cent contraction YoY, led mainly by a decline in the import of primary and consumer durable goods.

Additionally, both energy and non-energy prices plummeted in Q1 FY24, dropping 38.5 per cent and 16.6 per cent year-on-year, respectively. This led to a 2.9 per cent YoY decrease in wholesale prices, the first such drop in 11 quarters.

“Ind-Ra expects the current account deficit could rise further in Q2 FY24. The global economic environment remains uncertain amid concerns of higher-than-expected monetary tightening by central banks in advanced economies and a weaker economic recovery in China. Furthermore, there has been an additional risk of extreme weather events playing out in different countries (owing to El-Nino), which has led to an uptick in the prices of energy and some of the food commodities,” said Paras Jasrai, senior analyst, Ind-Ra. 

ALCHEMPro News Desk (DP)