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

New Delhi, July 14 (UNI) The expectation of the expansion of the cur- rent account deficit is not just driven by elevated global commodity prices, but is also linked to the unlocking of the econ- omy reviving pent-up demand and improved vaccination cover aid- ing an organic recovery in the economy, ratings and research firm Acuite Ratings & Research said in a report.Nevertheless, there is considerable uncertainty in project- ing trade and current ac- count deficit due to high volatility in commodity prices, which in the current environment is tak- ing cues from unpredict- able 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 bil- lion (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 the Ministry of Commerce and Industry’s preliminary data. On the other hand, imports increased slightly to $60.6 bil- lion in May from $60.3 bil- lion in the previous month, given the 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 modera- tion was driven by non-oil exports while oil exports eased a tad in May-22. On a sectoral basis, com- modities such as petro- leum products, electronic goods, chemicals, and engineering goods remained strong in May-22.

“The re- port further said that the evolving global geopoliti- cal dynamics, and policy support through targeted incentive structures like the production-linked in- centive schemes and stra- tegic trade partnerships (such as India-Australia trade agreement, and In- dia-UAE trade pact) would also continue to support exports, besides the inor- ganic expansion via price effect. That said, some normalisation in growth is likely in the coming quar- ters on deceleration in global demand, the report added.