High commodity prices continue to weigh on trade deficit, estimate for FY23 at $90bn: Acuite

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High commodity prices continue to weigh on trade deficit, estimate for FY23 at $90bn: Acuite

Tuesday, 07 June 2022 | IANS | new Delhi

The expectation of  expansion of current account deficit is not just driven by elevated global commodity prices, but is also linked to unlocking of economy reviving pent-up demand and improved vaccination cover aiding an organic recovery in economy, ratings and research firm Acuite Ratings & Research said in a report.

Nevertheless, there is considerable uncertainty in projecting trade and current account deficit due to high volatility in commodity prices, which in current environment is taking cues from unpredictable geopolitical events. "Given, the relentless rise in commodity prices particularly crude oil which has again risen to $120 per barrel, we project current account deficit (CAD) to widen to more than $90 billion (in FY23) from an estimated $47 billion in FY22," the report said.

India's merchandise trade deficit widened to a record high level of $23.3 billion in May 2022 from a deficit of $20.1 billion in April, the report said citing Ministry of Commerce and Industry's preliminary data. On other hand, imports hiked  to $60.6 billion in May from $60.3 billion in previous month, given rising crude oil bill.

Notably, India's share of oil imports from Russia has increased from 2 per cent to nearly 25 per cent since the onslaught of the geopolitical crisis, with India taking advantage of competitive pricing with an aim to fulfil its heavy oil needs, it said.

"On the exports front, the moderation was driven by non-oil exports while oil exports eased a tad in May-22. On a sectoral basis, commodities such as petroleum products, electronic goods, chemicals, and engineering goods remained strong in May-22."

The report further said that the evolving global geopolitical dynamics, and policy support through targeted incentive structures like the production-linked incentive schemes and strategic trade partnerships (such as India-Australia trade agreement, and India-UAE trade pact) would also continue to support exports, besides the inorganic expansion via price effect.

That said, some normalisation in growth is likely in the coming quarters on deceleration in global demand, the report added.

 

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