India's CAD To Narrow Down To 1-1.5% Of GDP In FY25: Report
India’s merchandise trade deficit was higher, as imports have risen at a sharper pace than exports
The Bank of Baroda in a report has said that India’s current account deficit (CAD) is likely to be within a range of 1 per cent to 1.5 per cent of gross domestic product (GDP) in FY25. It stated that the country’s trade deficit widened to USD 23.5 billion in July 2024 from USD 19 bn in June 2024.
This inflated deficit is attributable to the faster pace of increase in imports which grew by 7.5 per cent in July 2024, on a year-on-year (YoY) basis to USD 57 billion. The increase in imports is led by non-oil non-gold components, which signals recovery in domestic demand. However, on a seasonally adjusted (SA basis), the sequential increase of imports is much lesser at 1 per cent.
Exports, on the other hand, fell by 1.5 per cent to USD 34 billion, albeit a lower base. Even on an SA basis, the fall in exports is sharper at -2.7 per cent. Exports improved by 4.1 per cent from April to July compared with a decline of 13.1 per cent in the same period of the previous year. In terms of commodity-wise exports, improvement was led by oil exports, mainly a price-driven phenomenon.
Even agriculture exports witnessed momentum, led by tobacco, coffee, tea and protein-based items. Higher inflationary pressure in cereals has kept a lid on exports of cereals. Textile exports also picked pace and is likely to witness further growth in the coming days as some political unrest in Bangladesh may lead to some shift," the report added.
The BoB report added that the current run rate of merchandise trade deficit in FYTD25 is higher at US$ 85.6bn compared to US$ 75.1bn in the same period of last year. If the same run rate is maintained for the remaining half of the year, there would be some upside risk. "However, going ahead, some corrections might be witnessed," it stated.
The export cycle is expected to revive as the Fed hints at embarking on its rate-cut cycle in September 2024. This in turn will support global growth that is exhibiting some bit of patchiness, especially in China and the Eurozone. Softer commodity prices will lend support to imports, according to the report.
