Nomura raises India’s current account deficit estimate over fears of slowing exports

Workers carry sacks of wheat for sifting at a grain mill on the outskirts of Ahmedabad, India May 16, 2022. REUTERS/Amit Dave

MUMBAI, Sept 6 (Reuters) – Research firm Nomura expects India’s current account (CAD) deficit as a percentage of gross domestic product to triple this financial year, saying an economic slowdown will further distort the country’s trade imbalances.

In a note dated Sept. 5, the research house said it now expects India’s CAD to grow to 3.5% of GDP in the current fiscal year, down from 1.2% last year. last year. He had previously forecast the share to be 3.3% of GDP.

In addition, India’s trade deficit narrowed slightly to $28.7 billion in August from a record high of $30 billion the month before, offering little relief, Nomura said. The growth pace of imports and exports moderated, although the slowdown was more pronounced in exports, he added.

“While moderating commodity prices and the uneven pace of growth recovery will affect import growth in the coming months, slowing global growth will likely weigh more on exports and lead to persistently high trade deficits. .”

India’s Nomura Normalization Index (NINI) for trade, which excludes base and seasonal effects, showed export growth fell to nearly 26% in August from a peak of 48% in above the pre-pandemic level in June 2022. In contrast, imports fell to 60% from 78% over the same period.

Nomura pointed out that the average monthly trade deficit in this fiscal year through August was about $26 billion, compared to an average of $16 billion last year.

“High monthly trade deficits are increasingly becoming the norm rather than the exception. External sector risks remain elevated,” the research house said.

While foreign direct investment (FDI) flows are expected to remain stable, they are unlikely to fully offset weak portfolio flows, he added.

This should lead to a negative basic balance of payments.

Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil

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