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India's current account may be back to deficit in FY22
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SME Times News Bureau | 05 Jul, 2021
The healthy growth in exports during the April-June quarter
notwithstanding, the country's current account deficit could see a big
turn in FY22, changing from a surplus position in Covid hit FY21 back to
a deficit situation in the current year, a report on the country's
trade position has said.
According to a report from Emkay Global
Financial, the Indian economy would catch up from Q2FY22, led by
tailwinds of a smart global recovery and steady progress in vaccination.
This would push up imports as compared to exports, and the return of
the current account deficit.
"We continue to believe that FY22
will see import growth exceeding export growth as the gradual recovery
implies, while higher losses in oil-led (and higher commodities in
general) terms of trade will imply current account-to-GDP to return to a
deficit of 0.8% ($ 26 billion) from a surplus of 0.9% in FY21."
The
projection for a current account deficit in FY22 comes even as India
has recorded the highest ever merchandise exports of $ 95 billion in the
April-June quarter of the current fiscal year (FY22). This is 85%
higher than exports of Q1 of 2020-21 and 18% higher than the exports of
Q1 of 2019-20. It is also 16% more than the previous highest Q1 exports
of 2018-19 ($ 82 billion) and is higher than the earlier peak of exports
in Q4 of 2020-21 ($ 90 billion).
The brokerage report said that
despite the position of the current account deficit this year, healthy
capital flows will ensure FY22 BoP (balance of payment) remains in a
surplus of $ 50 billion.
Positive BoP dynamics should also
ideally help keep a mild upward bias on INR vs. Dollar especially as
global liquidity continues to chase carry in EM (emerging markets)
economies, although selectively.
However, global winds may imply
foreign investors would start asking for a higher risk premium from EM
and it could start pressurizing EM assets, including in India.
Emkay
said that India's real rates have been negative and one of the lowest
in the EM pack. Besides, continued tactical intervention by the RBI will
ensure the Rupee remains somewhere in the middle of the EM pack in
terms of spot returns.
Overall, Rupee performance will be caught
between mixed external terms of trade, gradually changing global risk
environment, the RBI's stance, as well as fiscal fragilities, the report
said.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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