Current account deficit likely to hit three-year high at $43.8 billion in FY22

Exports could face significant headwinds from rising uncertainty and volatility in the global economy primarily because of the spike in commodity prices, especially crude oil after Russia invaded Ukraine

The country's current account deficit is likely to hit a three-year high of 1.8% or $43.81 billion in FY22, as against a surplus of 0.9% or $23.91 billion in FY21, a report said on Thursday.

According to an assessment by India Ratings, the Current Account Deficit (CAD) has moderated to $17.3 billion or 1.96% of GDP in the fourth quarter of FY22 as against $8.2 billion or 1.03% in the year-ago period, and massively down from $23.02 billion or 2.74% in Q3, which was a 13-quarter high.

The improvement in the key numbers are due to the remarkable improvement in merchandise exports in FY22, when it grew 42.4% as against a negative 7.5% in the pandemic-hit FY121.

But exports could face significant headwinds from rising uncertainty and volatility in the global economy primarily because of the spike in commodity prices, especially crude oil after Russia invaded Ukraine, the report warned, and pointed to the lower forecast of global growth by the World Trade Organisation (WTO) which sees the global economy clipping at just about 3% in 2022, down from 4.7% forecast earlier.

The world trade body has pegged the import growth for India's key exporting partners such as North America and Europe at 3.9% and 3.7%, respectively, in 2022, lower than 4.5% and 6.8%, respectively, forecast earlier.

However, higher oil prices will benefit oil exporting countries such as Saudi Arabia, which will lead to higher real incomes, and thus, higher import demand which is expected to increase by 11.7% in 2022 from 8.7% forecast earlier.

On the other hand, India's merchandise imports are expected to accelerate on the back of escalated commodity prices and rupee depreciation in FY23.