In the second quarter of FY23, country’s current account deficit (CAD) increased to a nine-year high of 4.4% of its gross domestic product, or $36.4 billion in absolute terms. The quarterly CAD exceeded the economists’ $35 billion expectation and is the greatest in value in more than ten years.
Country’s Current Account Deficit Widens in the IInd Qtr of FY23 to a nine-year high of 4.4% of the GDP
When capital movements and exports of commodities and services are taken into account, the current account displays the net position. India has typically had a deficit since it depends so heavily on imported oil. The slowdown in exports and the increase in oil and commodity prices following the situation in Ukraine, however, made the Q2 deficit abnormally significant.
Due to spike in oil and commodity prices following Ukraine War and slowdown in exports, the Q2 deficit extremely high
The Q2FY23 CAD is about four times as large as the $9.7 billion (1.3% of GDP) in Q2FY22 and almost twice as large as the $18.2 billion (2.2% of GDP) in Q1FY23. Wider CAD indicates a deficit in foreign exchange, which is bad for the rupee. However, the influence on market mood is greater due to the reporting delay.
The Q2FY23 CAD is about four times as large as the $9.7 billion (1.3% of GDP) in Q2FY22 and almost twice as large as the $18.2 billion (2.2% of GDP) in Q1FY23. Wider CAD indicates a deficit in foreign exchange, which is bad for the rupee. However, the influence on market mood is greater due to the reporting delay.
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Wider CAD, according to RBI, is a result of the merchandise trade imbalance rising to $385 billion from $63 billion in Q1FY23
According to the RBI, the widening CAD was caused by an increase in net outgo under investment income and a widening goods trade deficit, which grew to $83.5 billion from $63 billion in Q1FY23.
Aditi Nayar, chief economist for ICRA, said, “In spite of the fact that it was anticipated that India’s current account deficit would reach a record high in Q2FY23, the amount of the deficit was more than even the high end of our range of $31-34 billion. Outweighing higher-than-anticipated services surplus and secondary income flows were negative shocks in the merchandise trade deficit and primary income ” Nayar stated that she is still confident that the average trade deficit would decline in October and November, causing the CAD to fall to between $25 and 28 billion in the third quarter. “We forecast an intolerable $115 billion of GDP for the FY23 CAD.”
The worst for the CAD is passed, according to Madhavi Arora, lead economist at Emkay Global, since global commodity prices have stabilised. “For the fiscal year that ends in March, we estimate the CAD at 3.4% of GDP.”
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