Commodity price surge could push CAD down to 2.8% of GDP in Q3: Ind-Ra

“Risks to global post-COVID recovery have increased due to Russia-Ukraine conflict”

“Risks to global post-COVID recovery have increased due to Russia-Ukraine conflict”

The country’s current account deficit (CAD) is likely to widen to a 13-quarter high of US$23.6 billion or 2.8% of GDP in October-December (Q3 of FY22), reflecting higher commodity prices after Russia -Ukraine conflict is due to Research (Ind-Ra) in a report.

The agency said although the Omicron-led COVID wave has subsided, geopolitical risks to the global recovery have increased due to the Russia-Ukraine conflict.

“We expect the CAD to hit the second-highest level in Q3 FY22 at $23.6 billion (2.8% of GDP; 13-quarter high) versus a deficit of $9.6 billion US dollars (1.3% of GDP) in Q2 FY22,” the agency said.

In the third quarter of FY21, the deficit was $2.2 billion (0.3% of GDP).

The direct impact of the Russia-Ukraine conflict has pushed up commodity prices and freight and transport costs, while crude oil prices have skyrocketed, sources said.

In addition, the Indian rupee, which averaged 75 against the dollar in February 2022, is expected to average around 76 this month, resulting in a depreciation of 0.29% in the fourth quarter from the previous three-month period could lead, the agency added.

India Ratings said that despite the adverse impact of the Russia-Ukraine conflict, imports of goods are likely to continue to recover due to normalization of the domestic economy, higher commodity prices and devaluation of the rupee, taking fourth-quarter goods imports bill to over US$166 billion. Dollar would drive FY22.

The import bill for goods in FY22 is estimated at an all-time high of more than $606 billion, it said.

However, the agency said it believes merchandise exports could be capped at $101.3 billion in the fourth quarter of FY22 and $406 billion in FY22.

“As a result, the goods trade deficit is likely to come [in] at $200 billion in FY22. All in all, CAD is expected to be over $25 billion in the fourth quarter of FY22,” the report said.

To reach the export target of US$400 billion in FY22, exports must reach the US$22.61 billion level in March 2022, the report said.

Given the trend so far this fiscal year, despite heightened geopolitical risk from the Russia-Ukraine conflict, exports appear on track to surpass the $400 billion target, she added.

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