As the merchandise exports are projected to report a 1 per cent year-on-year (YoY) increase in the second quarter of the current financial year (Q2FY25), India’s current account deficit (CAD) is likely to rise to around 1 per cent of the country’s gross domestic product (GDP) in Q2FY25, as per a report by India Ratings and Research (Ind-Ra).
The report has estimated the current account balance to register a deficit of around USD 8 billion (0.8 per cent of GDP) in Q1FY25. This comes against the surplus of USD 5.7 billion (0.6 per cent of GDP) in the previous quarter. In Q1FY24, the CAD stood at 1 per cent of GDP.
In Q1FY25, the merchandise exports registered a 6 per cent YoY growth due to a low base effect, as the exports reported a negative 14.1 per cent YoY growth in Q1FY24. The sharpest growth in six quarters has been attributed to the stable demand from the United States, the United Arab Emirates (UAE) and the Netherlands. The goods exports declined to USD 110.1 billion in the last quarter after registering a seven-quarter high of USD 120.4 billion in Q4FY24.
On the other hand, the merchandise imports reported a 7.6 per cent YoY growth in Q1FY25 to USD 172.2 billion. A low-base effect contributed to this surge as the imports of primary and consumer non-durables grew by 11.7 per cent YoY and 14.6 per cent YoY. Respectively.
As per the report, the volume growth of the 10 imported principal commodities such as crude petroleum, petroleum products and electronic components ranged from negative 15.3 per cent to 157.7 per cent YoY, whereas the value growth ranged between 14.5 per cent to 260.3 per cent YoY in Q1FY25.
While Ind-Ra expects the merchandise exports to increase only 1.0 per cent to around USD 108 billion in Q2FY25, it projects the merchandise imports to grow 3.5 per cent to around USD 176 billion in Q2FY25. Overall, Ind-Ra expects the goods trade deficit to come in at USD68 billion in 2QFY25.
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