Barclays says India’s BoP “risk appears to be heightened for some time”
Barclays said the outcome of the Russo-Ukraine war will keep India’s balance of payments (BoP) risks high for some time.
“A large trade deficit has pushed the current account to a nine-year low, with the deficit no longer being fully offset by capital inflows. With rising commodity prices, India’s trade deficit and current account deficit will be at a standstill for some time. is poised to stay big, wrote economists at Barclays in a research note to clients.
“The increase in the current account balance was primarily due to a sharp decline in the trade deficit, which widened to $60.4 billion from $44.4 billion in Q3 21, amid a normalization of activity and a rise in commodity prices. increased dramatically. 22 is poised to continue, particularly given the ongoing recovery in commodity prices and growth in energy.”
India’s external account – both the current account and the BoP – deteriorated during the December quarter on the back of a jump in crude oil prices and record dragging by foreign institutional investors.
In fact, the current account deficit (CAD) widened to $23 billion, or 2.7 percent of gross domestic product (GDP), in the quarter ended December 2021, from $9.9 billion, or 1.3 percent, of GDP in the previous quarter. Reserve Bank of India (RBI) on Thursday.
The data was for the period before the Russo-Ukraine war, which has pushed oil prices to decade highs, with Brent above $100 a barrel since Russia invaded Ukraine on February 24.
“India’s current account staring at a significant deficit: Primary macro variable set to worsen in view of Russia-Ukraine conflict
The account deficit, which we now expect to exceed $100bn in FY22-23, Barclays said.
“The external balance, which has been a major factor of support for India over the past two years, has seen a decline in high oil prices over the past few years, but also an increase in the prices of coal, natural gas, edible oils and Gold will weigh on the trade deficit,” the research note added.