India CAD: CAD to widen as global commodity prices high, inflation could push imports up: analysts

NEW DELHI – Data on India’s merchandise trade deficit, which remained high at $ 22 billion in December, showed an improvement in exports, but the upward trend in imports could intensify in the months ahead, leading to a widening of the current account deficit, analysts said. .

“We expect high global commodity prices, high inflation and stable domestic demand to drive up imports in the coming months, although India is on the cusp of a third wave of Covid, “Nomura economists wrote.

The foreign company fixes India’s current account deficit (CAD) at 3.4% of GDP in October-December, significantly higher than 1.3% a quarter ago and 1.9% of GDP in 2022-2023 (April-March), up an estimate of 1.6 percent for the current fiscal year.

Provisions data show India’s trade deficit has continued to grow, reaching around $ 22 billion in December, not far from the record high of $ 23 billion a month ago.

While exports grew 37 percent year-on-year in December from 27.2 percent in November, imports remained robust, registering a 38.1 percent year-on-year increase in December.

Imports may have slowed from the 56.6% growth seen in November, but this was mainly a reflection of an unfavorable base effect, Nomura economists wrote.

“On a 2 to 2 year basis, import growth accelerated to nearly 50% in December, compared to 37.4% in November. Part of the widening trade deficit is seasonal: On a seasonally adjusted basis, the trade deficit narrowed to $ 17.8 billion in December, from $ 20.4 billion in November and 18.4 billion. billion dollars in October, ”they wrote.

Providing a breakdown of the numbers, economists at QuantEco Research wrote that the record number of monthly exports was due to three individual cases – electronics, engineered products and cotton yarns, fabrics and woven products in the hand.

“Core exports (title excluding petroleum products and precious stones and jewelry) and core imports hit a new record of $ 28.7 billion and $ 38.7 billion respectively,” wrote economists at QuantEco, adding that the strong export dynamic was also driven by petroleum products, precious stones. and jewelry, chemicals, ready-made clothes and rice, among others.

On the import side, the research company reported three individual cases – organic and inorganic chemicals, plastic and rubber items, and electrical and non-electric machinery.

Sequentially, the increase in import dynamics was also attributable to petroleum products, transportation equipment, gems and jewelry and electronics, QuantEco said.

According to economists at Nomura, an analysis of oil imports – which increased 48.5% on a biennial basis – shows a sharp increase in import volumes, as world oil prices had started to moderate in January. November.

The strong momentum in gold imports, which reached $ 7.4 billion in December against $ 4.2 billion in November and $ 5.1 billion in September-October, may in part reflect the choice of consumers for the precious metal as a hedge against rising inflation, Nomura wrote.

National restrictions to curb the spread of Omicron are not yet as tight as previous shutdowns, QuantEco expects the negative impact on economic activity and import demand to be limited compared to the experience of the first and second waves of the disease in India.

The research firm raised its current account deficit forecast for the current year to $ 48 billion from $ 40 billion earlier. In the previous fiscal year, India had posted a current account surplus of $ 24 billion.

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