MUMBAI: Despite healthy export growth in the April-June quarter, the country’s current account deficit could see a significant turn in FY22, moving from a surplus position on Covid in fiscal year 21 to a deficit situation for the current year, according to a report on the country’s trade position said.
According to a report by Emkay Global Financial, India’s economy is expected to catch up from the second quarter of FY22, driven by a smart global recovery and steady progress in immunization. This would lead to an increase in imports relative to exports and the return of the current account deficit.
“We continue to believe that FY22 will see import growth outstrip export growth as implied by the gradual recovery, while higher terms of trade losses induced by oil (and raw materials in general) will imply a return of the current account to GDP to a deficit of 0.8% ($ 26 billion) from a surplus of 0.9% in fiscal year 21. ”
The projected current account deficit in FY22 comes even as India recorded the highest ever merchandise exports of $ 95 billion in the April-June quarter. of the current fiscal year (fiscal year 22). This is 85% more than the exports of the first quarter of 2020-21 and 18% more than the exports of the first quarter of 2019-2020. It is also 16% higher than the highest exports in the first quarter of 2018-19 ($ 82 billion) and is higher than the peak in exports prior to the fourth quarter of 2020-21 ($ 90 billion).
The brokerage report said that despite the current account deficit position this year, healthy capital flows will ensure that the fiscal year 22 BOP (balance of payments) remains in surplus of $ 50 billion.
Positive BoP momentum should also ideally help maintain a slight upward bias on INR versus the dollar, especially as global liquidity continues to drive carry in emerging market economies, albeit on a selective basis. .
However, global winds may imply that foreign investors would start to demand a higher risk premium from emerging markets and this could start to put pressure on emerging market assets, including India.
Emkay said India’s real rates were negative and one of the lowest in emerging markets. Additionally, the RBI’s continued tactical intervention will ensure that the Rupee remains somewhere in the middle of the EM pack in terms of spot returns.
Overall, the rupee’s performance will be caught between mixed external terms of trade, a gradually changing global risk environment, the position of the RBI, as well as fiscal weaknesses, according to the report.
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According to a report by Emkay Global Financial, India’s economy is expected to catch up from the second quarter of FY22, driven by a smart global recovery and steady progress in immunization. This would lead to an increase in imports relative to exports and the return of the current account deficit.
“We continue to believe that FY22 will see import growth outstrip export growth as implied by the gradual recovery, while higher terms of trade losses induced by oil (and raw materials in general) will imply a return of the current account to GDP to a deficit of 0.8% ($ 26 billion) from a surplus of 0.9% in fiscal year 21. ”
The projected current account deficit in FY22 comes even as India recorded the highest ever merchandise exports of $ 95 billion in the April-June quarter. of the current fiscal year (fiscal year 22). This is 85% more than the exports of the first quarter of 2020-21 and 18% more than the exports of the first quarter of 2019-2020. It is also 16% higher than the highest exports in the first quarter of 2018-19 ($ 82 billion) and is higher than the peak in exports prior to the fourth quarter of 2020-21 ($ 90 billion).
The brokerage report said that despite the current account deficit position this year, healthy capital flows will ensure that the fiscal year 22 BOP (balance of payments) remains in surplus of $ 50 billion.
Positive BoP momentum should also ideally help maintain a slight upward bias on INR versus the dollar, especially as global liquidity continues to drive carry in emerging market economies, albeit on a selective basis. .
However, global winds may imply that foreign investors would start to demand a higher risk premium from emerging markets and this could start to put pressure on emerging market assets, including India.
Emkay said India’s real rates were negative and one of the lowest in emerging markets. Additionally, the RBI’s continued tactical intervention will ensure that the Rupee remains somewhere in the middle of the EM pack in terms of spot returns.
Overall, the rupee’s performance will be caught between mixed external terms of trade, a gradually changing global risk environment, the position of the RBI, as well as fiscal weaknesses, according to the report.
