The country's current account deficit is likely to touch $105 billion or 3 per cent of the GDP this fiscal, mainly due to continuously widening trade deficit, according to a report.
In the report on Tuesday, Bank of America (BofA) Securities revised upwards its Current Account Deficit (CAD) forecast by 0.4 percentage points for this financial year.
Trade deficit in June widened to a record high of $25.6 billion from $24.3 billion in May. On a quarterly basis, the gap increased 122.8 per cent in June quarter to $70.33 billion from $31.43 billion in the year-ago period.
The continuously widening trade deficit warrants a re-look at BofA's CAD estimate, the report said.
''Although we continue to see Brent at $105 a barrel in 2022, higher non-oil, non-gold imports and lower exports are now likely to push CAD to 3 per cent at $105 billion, up from 2.6 per cent of GDP or $90 billion projected earlier,'' BofA Securities analysts said in the report.
Although the delta wave resulted in an unusually low trade deficit in Q1 FY22, in FY23, higher gold and oil imports have led to a sharp increase in trade deficit so far, they noted.
Total exports rose 22.1 per cent to $116.66 billion in June quarter from $95.54 billion in the year-ago period. Total imports jumped 47.3 per cent to $186.99 billion from $126.97 billion during the same period.
This left a trade gap of $70.33 billion, 123.8 per cent more than $31.43 billion in Q1 FY22 due to the deadly second wave of the pandemic.
During Q1, oil exports jumped 88.1 per cent to $24.25 billion and non-oil exports inched up 11.8 per cent to $92.42 billion. Oil imports soared 94.3 per cent to $60.06 billion, primarily due to the Russia-Ukraine war and oil cartel Opec's pre-war decision to cut supplies.
The report noted that continuing FPI outflows warrant a re-look at capital account surplus and projected the Balance of Payments (BoP) deficit at $45 billion or 1.3 per cent of GDP in FY23.
The brokerage has projected Brent crude oil averaging at $105 a barrel in 2022, and higher non-oil, non-gold imports and lower exports likely to push CAD higher.
Slowing global growth will also pose a downside risk to services exports estimate, but the recent tick down in global commodity prices is a meaningful risk to watch out for on the other side, it added.
BofA Securities also cut the capital account (BoP) surplus forecast to $60 billion from the previous projection of over $75 billion, citing the continuing FPI outflows which has touched $17 billion so far in 2022.
Although some FPI debt inflows are expected, especially after the recently announced RBI measures to augment foreign flows, FPI equity inflows still look elusive given the global risk-off environment. Accordingly, we now see total FPI outflows of $10 billion in FY23, the report said.
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