India's current account deficit is expected to rise due to geopolitical risks emanating from the Russia-Ukraine conflict.
CThe AD is expected to come in at the second-highest level of $23.6 billion in 3QFY22 as against a deficit of $9.6 billion in 2QFY22.
"Although the Omicron-led Covid wave has subsided, the geopolitical risks to the global recovery have increased due to the Russia-Ukraine conflict," ratings agency India Ratings and Research (Ind-Ra) said in a report.
"The direct effects of this conflict have pushed the commodity prices and freight and transportation costs higher."
Besides, the agency cited that Indian rupee (INR), which averaged Rs 75 against the US dollar in February 2022, is expected to average around Rs 76 in March 2022 which might result in a depreciation of 0.29 per cent in 4QFY22 over 3QFY22.
"Ind-Ra believes that despite the adverse effects of the Russian-Ukraine conflict, the merchandise imports are likely to recover further due to the normalising domestic economy, higher commodity prices and depreciation of INR, pushing the merchandise imports bill to over $166 billion in 4QFY22."
"The FY22 merchandise import bill is estimated to be an all-time high of over $606 billion."
However, the agency pointed out that merchandise exports might be constrained to $101.3 billion in 4QFY22, taking the merchandise exports to $406 billion in FY22.
"As a result, the merchandise trade deficit is likely to come at $200 billion in FY22. All in all, CAD is expected at over $25 billion in 4QFY22."