India’s unfavorable import-export gap is expected to continue to widen in the current and next financial year, with the trade deficit soon to double to $200 billion. India reported a record import and export trade deficit in December.
The record trade figures for December can be attributed to positive price effects, seasonal increases, and domestic and global demand strong, according to a note from Kotak Securities.
The country’s trade deficit is expected to widen to $190 billion in the current 202122 fiscal years, and then to $200 billion in the next 2022-23, according to Kotak Securities. This compares to a $102 billion deficit recorded in the last fiscal year 2020-21.
Going forward, factors such as new global and domestic headwinds between the new omicron variant and lingering supply constraints need to go forward, analysts at brokerage Emkay Global Financial Services said that they monitored as they could slow the global cyclical recovery.
Regarding the current account deficit (CAD) as a percentage of GDP, Kotak Securities estimates that CAD represents 1.7% of GDP for fiscal years 2022 and 2023, while Emkay projects CAD/GDP or 1.7% for the current financial year and 1.8%+ for the fiscal year 2023.
Analysts at Kotak Securities also say the current account will likely be balanced by a large net inflow of around 81 billion USD, contributing about 32% of REIT flows, as India is expected to be included in the global bond indices. “We assume the announcements will come soon at 2HFY23 after clarity on the relevant tax issue in the financial invoice (March-March) and Euroclear settlement (assuming 1HFY23),” the analysts said.
India exported $37.3 billion of goods in December, up 37% year-on-year and 37.6% above pre-pandemic levels, Commerce Secretary Piyush Goyal said this week. Merchandise exports hit $300 billion from April to December, a record for the first three quarters of any fiscal year so far.
The main exports are petroleum products, technical products, as well as gems and jewelry. Merchandise imports from India also hit an all-time high, up 38.1% to $59.3 billion in December, helped by the resumption of electronics imports and imports of pearls, gems, and value sale stone.