Current account deficit at 37-quarter high of 4.4% of GDP in Q2: Report

India's current account deficit is expected to have swelled to $36 billion (4.4% of GDP) in the second quarter of 2022-23, as against $23.9 billion (2.8% of GDP) in Q1 FY23, according to Indian Ratings and Research (Ind-Ra).

While as a share of GDP, it is expected to have jumped to a 37-quarter high, in level terms it would have been at a record high, beating the previous high of $31.8 billion in Q3 FY13, says Ind-Ra.

Global headwinds facing merchandise exports can be gauged from the fact that goods exports tumbled in October 2022, first time after February 2021, the ratings agency says.

The global manufacturing activity remained in contraction even in November 2022 as the Global Purchasing Managers Index decelerated to 48.8 points. This was the lowest print since June 2020.

Against this backdrop, Ind-Ra expects the merchandise exports to slip to an eight-quarter low of $88.2 billion in Q3 FY23, which would be 17.4% lower than Q3 FY22.

Ind-Ra expects the Indian rupee to average 81.8 against the US dollar, up 9.1% year-on-year in Q3 FY23. The agency opines that the merchandise imports would decelerate to a three-quarter low of $171.9 billion in Q3 FY23, but would still be up 2.9% Y-o-Y.

Overall, the merchandise trade deficit would stand at a fresh high of $83.7 billion in Q3 FY23, 38.9% higher than Q3 FY22, as per Ind-Ra's estimates.

India's merchandise exports stood at a three-quarter low of $112.5 billion in Q2 FY23 due to the impact of global headwinds such as the Russia-Ukraine conflict, global growth slowdown and elevated inflation.

Besides commodities such as 'petroleum products', 'telecom instruments', 'ships, boat & floating structure', 'gold and other precious metal jewellery', the items which steered the merchandise exports in 2QFY23 were 'articles of iron & steel', 'basmati rice' and 'residual chemical and allied products' and 'agro chemicals', the report says.

While the volumes of these commodities grew in the range of negative 5.6% to 91.7% year-on-year, the value growth ranged between 17.1% and 164.7%, indicating the value growth in merchandise exports was more pronounced than the volume growth in Q2 FY23.

"The phenomenal increase in the volumes of telecom instruments exports in 2QFY23 is a welcome development. The higher demand came from China, Hong Kong, the UAE, the US, Austria, Netherlands, Italy and Kazakhstan," the ratings agency says.

"Export volumes for 'ships, boat & floating structure' were also robust due to a higher demand from Singapore, the UAE, the UK and Indonesia. Another commodity whose export volumes were strong in 2QFY23 was basmati rice. Demand from Iran, Saudi Arabia, the UAE, Yemen, the US and Iraq remained strong," it adds.