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Soaring imports to push current account deficit to 1.9% this fiscal year : Report.


Date: 03-12-2021
Subject: Soaring imports to push current account deficit to 1.9% this fiscal year : Report
Following the record USD 23.27 billion trade deficit in November, a foreign brokerage has increased its current account deficit (CAD) forecast to 1.9 per cent of GDP at USD 60 billion for 2021-22 as compared to USD 45 billion earlier. The government released the trade data on Wednesday which showed that exports rose 26.5 per cent year-on-year to USD 29.88 billion last month, while imports soared 57.2 per cent to USD 53.15 billion, leaving a trade deficit of USD 23.27 billion.

Trade deficit--the difference between a country's imports and exports -- has been rising and remains sticky, driven by weaker exports, surging domestic activity and higher commodity prices, a Barclays report said.

While recent correction in crude prices may mildly support deficit trends, a sustainable merchandise deficit level on an average basis is around USD 16-17 billion per month for the country, which can keep the CAD closer to a sustainable range of 2 per cent.

But at the current pace, CAD on an annualised basis is running closer to 3 per cent. "Accounting for some of reductions in the near-term, we raise our CAD forecast to USD 60 billion (from USD 45 billion earlier), or 1.9 per cent of GDP this fiscal," the report said.

Exports in April-November 2021 stood at USD 262.46 billion, an increase of 50.71 per cent from the same period of 2020. On the other hand, imports grew 75.39 per cent to USD 384.44 billion, taking the trade deficit to USD 121.98 billion during the eight-month period of this fiscal year.

In November, trade deficit more than doubled to USD 23.27 billion as gold imports grew about 8 per cent to USD 4.22 billion and other inbound shipments like crude surged 132.44 per cent to USD 14.68 billion.

The record high trade deficit in November is largely due to weaker exports, but also partly on account of ongoing strength in imports, which have remained elevated for three straight months, Barclays said and noted that exports moderated materially to USD 29.88 billion last month.

The report attributed the higher import bill of USD 53.2 billion to the elevated commodity prices and recovering domestic demand

Source:economictimes.com

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