FY22 CAD expected to widen: Report

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SME Times News Bureau | 19 Jul, 2021
India's FY22 YoY current account deficit is expected to widen, Acuite Ratings & Research said.

The ratings agency estimates approximately $30 billion deficit vis-a-vis $26 billion estimate in FY21.

"The anticipated surplus on the current account in Q1 FY22 is unlikely to sustain amidst the elevated level of commodity prices. More so, the gradual tapering of lockdown stringency at state level will continue to support revival in economic activity, which would further get a boost from anticipated ramp up in domestic vaccination drive in the coming months."

"This should lead to a return of the merchandise trade deficit to the normalized levels over the next few months."

Recent data showed India's merchandise trade deficit had widened to $9.4 billion from an 8-month low of $6.3 billion in May-21, in a fresh attempt towards normalisation after the second wave of the Covid pandemic.

"The deficit expansion was led by a recovery in imports allowed by the gradual unlocking of economy, as the value of outbound shipments remained virtually changed from previous month."

"Nevertheless, the level of trade deficit still remains lower than the pre-second wave average of $13.7 bn recorded over Nov-20 and Apr-21."

On a quarterly basis, for Q1FY22, the overall trade deficit stood at $30.8 billion, a significant up move compared to $9.6 billion over the corresponding period a year ago; but curtailed when compared to pre-pandemic level of $49.2 billion in Q1FY20.

"From a current account perspective, this means that India will once again switch to a surplus in Q1 FY22 albeit of a much lesser degree in comparison to Q1 of last fiscal year."