© Reuters. Workers carry sacks of wheat for sifting at a grain mill on the outskirts of Ahmedabad, India, May 16, 2022. REUTERS/Amit Dave
MUMBAI (Reuters) -Research house Nomura expects India’s current account deficit (CAD) as a share of the gross domestic product to triple this fiscal year, saying that a global economic slowdown will further skew the country’s trade imbalances.
In a note dated Sept. 5, the research house said it now expects India’s CAD to rise to 3.5% of GDP in the current fiscal year from 1.2% last year. It had previously forecast the share to be 3.3% of GDP.
Further, the slight decline in India’s trade deficit to $28.7 billion in August from a record $30 billion in the previous month offers little relief, Nomura said. The pace of growth of both imports and exports moderated, though the slowdown was more pronounced in exports, it added.
“While moderating commodity prices and the uneven pace of growth recovery will affect import growth in coming months, slowing global growth is likely to weigh further on exports and lead to persistently elevated trade deficits.”
The Nomura India Normalisation Index (NINI) for trade, which excludes base and seasonal effects, showed that export growth has fallen to near 26% in August from a peak 48% above pre-pandemic level in June 2022. In contrast, imports have fallen to 60% from 78% over the same period.
Nomura highlighted that the average monthly trade deficit in this fiscal year to August has been around $26 billion, as against last year’s average of $16 billion.
“High monthly trade deficits are increasingly becoming the norm rather than exception. External sector risks remain elevated,” the research house said.
While foreign direct investment (FDI) flows are likely to remain stable, it is unlikely to fully offset the weakness in portfolio flows, it added.
This should lead to a negative basic balance of payments.