Nomura sees CAD at 3.8% of GDP on high oil prices

India's current account deficit is likely to widen to 3.8% of GDP in the ongoing financial year started Apr 1 from a projected 1.6% in 2021-22 (Apr-Mar) on account of high crude oil and commodity prices amid the ongoing war between Russia and Ukraine, according to Nomura.

"Typically, a 10% rise in global crude oil prices widens India's current account deficit by 0.3% of GDP," Nomura said in a report.

The price of the Indian crude oil basket--which surged to $139.13 in March-was $103.48 per barrel on Monday, $20 per bbl more than what it was at the start of calendar year 2022.

Data released on Thursday by the Reserve Bank of India showed India's current account deficit surged to $23.0 bln in Oct-Dec, the highest since Oct-Dec 2012. As a percentage of GDP, the current account deficit in the third quarter of 2021-22 (Oct-Dec) was 2.7%, sharply higher than 0.3% in the year-ago period.

The rise in the current account deficit will primarily be due to a high trade deficit, which is expected to remain elevated in the coming months, Nomura said in the report.

The country's merchandise trade deficit rose 87.5% on year to $192.41 bln. In March, the trade deficit was at $18.69 bln, up 37.0% on year, according to the preliminary trade data released by the commerce and industry ministry on Monday.

"March trade data were the first month to reflect the headwinds from the Russia-Ukraine war and the commodity price flareup, although the fuller extent of the impact will only materialise over the coming months," Nomura said.

"While India's direct trade exposure to RussiaUkraine-Belarus is small, its supply dependence on specific products, such as edible oils, fertilisers and project goods is much higher," it said. "The broader rise in commodity prices, including fertilisers, natural gas, coal, metals, edible oils, is also likely to negatively impact imports."