The country’s current account deficit (CAD) likely moderated to 1.96% of GDP ($17.3 billion) in 4QFY22, as against a deficit of 2.74% of GDP in Q3FY22, India Ratings said in a report on Thursday.

The CAD is estimated to have been at 1.38% ($43.81 billion) in FY22 compared to the current account surplus of 0.9% ($23.91 billion) in FY21, it said.

The World Trade Organisation (WTO) has projected merchandise trade volume growth at 3% in 2022, down from its earlier forecast of 4.7%. India’s merchandise exports, which grew by over 42%, would face significant headwinds in FY23 due to the clouds of uncertainty and volatility in the global economy. The WTO pegs the imports volume growth for India’s key exporting partners such as the US (North America) and Europe at 3.9% and 3.7%, respectively, in 2022, lower than 4.5% and 6.8%, respectively, forecasted earlier. On the other hand, India’s merchandise imports are expected to accelerate on the back of escalated commodity prices and higher rupee depreciation in FY23.

India Ratings expects the merchandise exports to come in at $112.5 billion, growing by 17.7% y-o-y in Q1FY23 (Q1FY22: up 85.7% y-o-y). The merchandise imports grew 44.1% y-o-y during April-May 2022 to $120.9 billion and are expected to stand at $182.9 billion increasing by 44.1% y-o-y in Q1FY23 (1QFY22: 107.2%).

This is due to the normalisation of domestic economic activities, steep levels of commodity prices (volatile crude oil prices — Brent crude averaged $113.11/barrel in May 2022; April 2022: $104.89/barrel, March 2022: $117.25/barrel) and inflated freight and transportation costs.

Moreover, the rupee is expected to depreciate to Rs 77.1 against the US dollar in Q1FY23, higher by 4.5% over Q1FY22, it said.