India's current account deficit to widen in FY23, says brokerage Edelweiss
Jun 24, 2022
New Delhi [India], June 24 : India's current account deficit (CAD) is expected to widen and be in the range of 2.6 per cent to 2.8 per cent of gross domestic product (GDP) in the current financial year FY23, said brokerage and financial services firm Edelweiss Broking.
The high merchandise trade deficit coupled with the fund outflow from financial markets has weakened India's external account or balance of payment position.
Notably, foreign portfolio investors have been pulling out money from India for the past consecutive eighth-to-nine months.
"The country's balance of payment slipped into a deficit of $16 billion in Q4 FY22 for the first time in 13 quarters after recording a marginal surplus of $0.47 billion in Q3 FY22. For the financial year, although the BoP recorded a surplus of $47.5 billion, it was lower by $40 billion or 46 per cent than that in FY21 and the lowest in three years," the brokerage said.
This has implications for the Indian currency rupee, and the weakness in the rupee is to prevail, it said adding that it expects the rupee movement in the range of 77.5 to 79 over the next 2-3 months.
The lower foreign currency receipts compared with payments/outflows have been weighing down the Indian rupee which has depreciated by over 5 per cent since the start of 2022.
For FY22, the current account deficit came in at $38 billion or 1.2 per cent of GDP as against a surplus of $24 billion or 0.9 per cent of GDP in FY21, which was the highest in three years.
The widening of the current account deficit in FY22 was primarily due to the surge in the merchandise trade deficit which nearly doubled from that in the previous year to worth $189 billion owing to the higher imports of goods associated with the revival in economic activity and rise in global commodity prices, it added.
In terms of financial flows in FY22, net total foreign investment inflows of around $22 billion were 73 per cent lower than FY21. This was mainly due to the net foreign portfolio investments outflow to the tune of $16.8 billion, which is in sharp contrast to the net inflows of $36 billion in FY21.
