India's current account deficit likely to touch $105 bn this fiscal: Report

The country's current account deficit is likely to touch USD 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 USD 25.6 billion from USD 24.3 billion in May. On a quarterly basis, the gap increased 122.8 per cent in June quarter to USD 70.33 billion from USD 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 USD 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 USD 105 billion, up from 2.6 per cent of GDP or USD 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 USD 116.66 billion in June quarter from USD 95.54 billion in the year-ago period. Total imports jumped 47.3 per cent to USD 186.99 billion from USD 126.97 billion during the same period.

This left a trade gap of USD 70.33 billion, 123.8 per cent more than USD 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 USD 24.25 billion and non-oil exports inched up 11.8 per cent to USD 92.42 billion. Oil imports soared 94.3 per cent to USD 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 USD 45 billion or 1.3 per cent of GDP in FY23.

The brokerage has projected Brent crude oil averaging at USD 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 USD 60 billion from the previous projection of over USD 75 billion, citing the continuing FPI outflows which has touched USD 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 USD 10 billion in FY23, the report said.