InvestorQ : Do you see the current account narrowing in the June 2022 quarter or do you it widening?
Debbie Mascarenhas made post

Do you see the current account narrowing in the June 2022 quarter or do you it widening?

Arti Chavan answered.
1 year ago

In the March 2022 quarter, the current account deficit actually narrowed by almost $7.76 billion due to a combination of higher export growth, larger services surplus and lower interest and dividend pay-outs. However, it may be too early to start the celebration as the current account deficit could see a lot of pressure from the June quarter onwards. In fact, I would go to the extent of saying that the June quarter could be a shocker for the current account. There are several reasons why I believe that current account deficit can widen.

The March 2022 quarter did not see the full impact of the Ukraine war. After 4 months, the war in Ukraine continues and has a resulted in an all-round spike in the price of commodities. Month after month, India is importing more crude oil, gold, coal, coke and fertilizers. That is likely to continue. However, exports could come under pressure as supply chain constraints, availability of liners, embargoes and a likely recession in the world economy could reduce the global appetite for Indian exports. It is time to watch out.

Let us look at some of the numbers for affirmation. If you consider the trade data for the months of March, April and May 2022, average monthly trade deficit has been in the range of $22 billion. That would approximately translate into around $250 billion for the full year, or perhaps even more. That is substantially higher than the average figure in the last few months and could put immense pressure on the overall current account deficit in the coming quarters. But, there could be more pressure from the overall deficit too.

The overall deficit is a net figure combining the merchandise trade deficit and the services trade surplus and is the key factor impacting the current account. For the two months of April and May 2022, that figure stands at $27 billion so for the full year FY23 you can extrapolate it in the range of $150 billion to $160 billion. That is nearly twice the overall deficit that India reported in FY22. Services surplus could take a hit as the recession could lead to a slowdown in tech spending. June would be the real quarter to watch out for.