India's imports expand faster than exports; current account deficit likely to worsen

India’s merchandise exports in June grew 23.52% to $40.13 billion but a sharper rise of 57.55% in imports widened the trade deficit to a record $26.18 billion.

Data released by the commerce and industry ministry on Thursday showed imports at $66.31 billion in June, led by silver, petroleum, coal, and gold.

The deficit was $8.1 billion in January-March 2021.

In percentage terms, the CAD in January-March 2022 was 1.5 percent of GDP, down from 2.6 percent of GDP the previous quarter.

The trade deficit was $9.6 billion in June and economists expect it to rise to a record $250 billion or 7.3% of GDP this fiscal.

Likely to widen further

The country's current account deficit is likely to touch USD 105 billion or 3 per cent of the GDP this fiscal, mainly due to continuously widening trade deficit, according to a report.

In the report on Tuesday, Bank of America (BofA) Securities revised upwards its Current Account Deficit (CAD) forecast by 0.4 percentage points for this financial year.

Trade deficit in June widened to a record high of USD 25.6 billion from USD 24.3 billion in May. On a quarterly basis, the gap increased 122.8 per cent in June quarter to USD 70.33 billion from USD 31.43 billion in the year-ago period.

The continuously widening trade deficit warrants a re-look at BofA's CAD estimate, the report said.

"Although we continue to see Brent at USD 105 a barrel in 2022, higher non-oil, non-gold imports and lower exports are now likely to push CAD to 3 per cent at USD 105 billion, up from 2.6 per cent of GDP or USD 90 billion projected earlier," BofA Securities analysts said in the report.

Although the delta wave resulted in an unusually low trade deficit in Q1 FY22, in FY23, higher gold and oil imports have led to a sharp increase in trade deficit so far, they noted.

(with inputs from agencies)