The country's current account deficit (CAD) is expected to reach a 13-quarter high of USD 23.6 billion, or 2.8 percent of GDP, in October-December 2021-22 as a result of higher commodity prices following the Russia-Ukraine conflict, according to India Ratings and Research (Ind-Ra).
According to the report, while the Omicron-led COVID wave has subsided, the geopolitical risks to global recovery have increased as a result of the Russia-Ukraine conflict. "We expect the CAD to be USD 23.6 billion (2.8 percent of GDP; 13-quarter high) in Q3 FY22, up from a deficit of USD 9.6 billion (1.3 percent of GDP) in Q2 FY22," the agency said.
The deficit in the third quarter of FY21 was USD 2.2 billion (0.3 per cent of GDP). The direct consequences of the Russia-Ukraine conflict have pushed commodity prices, freight and transportation costs higher; crude oil prices have been on the rise, according to the report. Furthermore, the Indian rupee, which averaged 75 against the dollar in February 2022, is expected to average around 76 this month, resulting in a 0.29 percent depreciation in the fourth quarter over the previous three-month period, according to the report.
According to the agency, despite the negative effects of the Russia-Ukraine conflict, merchandise imports are likely to recover further due to a normalising domestic economy, higher commodity prices, and rupee depreciation, pushing the merchandise imports bill to more than USD 166 billion in Q4 FY22.
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