India’s CAD likely to narrow to around $10 billion or 1% of GDP in Q1FY24: India Ratings

29 Aug 2023 Evaluate

Expressing optimism over India’s current account deficit (CAD) situation, India Ratings has said that the country’s CAD is likely to narrow to around $10 billion or 1 per cent of Gross Domestic Product (GDP) in April-June quarter (Q1) of the current fiscal year (FY24), with falling trade deficit. The country's CAD stood at $18 billion or 2.1 per cent in the corresponding period of the previous fiscal.

However, it expects CAD to rise in the second quarter of the current fiscal as it sees merchandise exports declining below $100 billion after a gap of eight quarters. Imports are expected to be around $163 billion during the period, up from a seven-quarter low of $160.3 billion witnessed in Q1 FY24, due to increase in crude prices since July. This will have the overall trade deficit printing in at a three-quarter high of $64 billion.

Another reason is the moderation in services demand since June due to the slowdown in the global economy. Global services PMI stood at a five-month low of 52.7 in July. Thus, it said services trade surplus to remain around $36 billion in Q2. Merchandise exports contracted even in Q1 by coming in 14.1 per cent lower than the year-ago period. This was the biggest decline in the last 12 quarters. Goods exports stood at a seven-quarter low of $104 billion in Q1 FY24.

Merchandise imports came down to a seven-quarter low of $160.3 billion in Q1, while goods imports shrunk 12.7 per cent in the same period, which was the sharpest fall since Q2 FY21. Benign commodity prices helped in reducing the country's import bill as the inbound shipments of critical commodities such as crude (18.5 per cent) coal (32.4 per cent), organic chemicals (31.9 per cent) and vegetable oils (32.9 per cent) came down in value terms.