India's merchandise trade deficit narrowed to USD 18.5 bn in Mar-22 from USD 20.9 bn in Feb-22. While both exports and imports increased in Mar-22, the relatively larger jump in exports helped the trade deficit to narrow sequentially. For the year as a whole, cumulative trade deficit stood at USD 192 bn in FY22, significantly higher than USD 161 bn deficit seen in the pre-pandemic year of FY20, highlighting the rapid pace of normalization since the second Covid wave, expedited by the rising commodity prices.
1. As per final estimates, India's merchandise trade deficit narrowed to USD 18.5 bn in Mar-22 from USD 20.9 bn in Feb-22.
2. While both exports and imports recorded a new monthly peak, the relatively higher jump in exports vis-à-vis imports resulted in narrowing of the trade deficit. While both oil and non-oil-non-gold trade deficit widened sequentially, a sharp correction in gold trade deficit helped in narrowing of the overall trade deficit.
3. India's annual merchandise trade exceeded USD 1 trillion for the first time in FY22.
4. Acuité's estimate of FY22 current account deficit of USD 50 bn could face a minor downside risk with likelihood of CAD printing at USD 47 bn.
5. For FY23, Acuité continues to project current account deficit to widen significantly to USD 85 bn.
6. Elevated commodity prices, unlocking of the economy, improving vaccination cover, among others, are some of the reasons behind the expected expansion of CAD in FY23.