India’s Balance of Payments “risks appear to have increased for some time,” Barclays said

India’s BoP “risks appear to be increasing for some time,” Barclays said

The impact of the Russia-Ukraine war will ensure balance of payments (BoP) risks for India appear to increase for some time, Barclays said.

“The larger trade deficit has pushed the current account to a nine -year low, with the deficit now no longer fully offset by capital inflows. With rising commodity prices, India’s trade deficit and current account deficit are set to remain large for some time,” he wrote. economists at Barclays in a research note to clients.

“The increase in the current account balance was mainly due to a sharp decline in the trade deficit, which rose to $ 60.4bn from $ 44.4bn in Q3 21, as imports rose sharply amid normalization of activity and rising commodity prices. Exports continued to hold up well,” but this is not enough to offset the widening deficit, which largely reflects improved growth and higher global prices. These dynamics are set to continue in Q1 22 and Q2 22 given continued increases in growth and commodity price surges, especially for energy. “

India’s external accounts – both the current account and the BoP – slumped in the December quarter on a spike in crude oil prices and a record pullback by foreign institutional investors.

In fact, the current account deficit (CAD) zoomed to $ 23 billion or 2.7 per cent of gross domestic product (GDP) in the quarter ended December 2021 from $ 9.9 billion or 1.3 per cent of GDP in the previous quarter, according to data released by the Reserve Bank of India (RBI). ) on Thursday.

The data is for the period before the escalating Russia-Ukraine war, which has pushed oil prices to decades-high highs, with Brent exceeding $ 100 a barrel since Russia invaded Ukraine on February 24th.

“India’s current account sees significant deficit: Key macro variables set to decline given the current 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 key supporting factor for India over the past two years, has seen its weakness against higher oil prices decline over the years, but a simultaneous rise in prices of coal, natural gas, edible oil, and gold will affect the trade deficit. , “added the research note.


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