Rising demand for imports to widen CAD

Mumbai: The trade deficit figures in the coming months are expected to moderate due to lower commodity prices and easing pressure on global supply chains. However, increasing risks to exports and relatively robust demand for imports are now likely to provide an upside risk to FY23 current account deficit (CAD) projection of $105 billion for India, Acuite ratings said in a report. Cumulative imports for the first four months of FY23 stand at $256.4 billion, marking an expansion of 48.1 per cent compared to the corresponding period in FY22.

The increasing pressure on merchandise trade deficit is a confluence of six factors such as domestic pent-up demand, slowdown in global growth, lagged impact of elevated commodity prices, temporary export restrictions imposed by the government and persistence of supply chain pressure.

India's trade deficit in July 2022 widened to $31.02 billion from $26.18 billion in June due to inflated commodity prices.

The merchandise exports in July moderated to $36.3 billion from $40.1 billion in the previous month. This translated into an annualized growth of 2.1 per cent on-year, the weakest in last 17-months.

The drop in momentum in exports is driven by the intense global headwinds, continuing geo-political conflict and importantly, the sharp rise in interest rates in the developed economies that induced capital flows out of developing nations and a significant depreciation in their currencies.