Citi cuts India current account deficit forecast to below 3pc of GDP
Citigroup lowered its projection for India's current account deficit (CAD) to 2.9 percent of gross domestic product (GDP) for the current fiscal year, citing the growth in the country's service exports and a lower oil price forecast. The brokerage had, in August last year, said it expected India's CAD to be as high as 3.9 percent of GDP for the fiscal year ending March 2023.
"The key surprise came from the phenomenal growth in services exports in the first half of the current fiscal year, which goes beyond just software services," Samiran Chakraborty, chief economist for India at Citi, said in a note.
Net exports of services rose 35 percent to $34.5 billion in the second quarter of the current fiscal. Citi also revised its CAD forecast for fiscal 2023-24 to 2.2 percent of GDP, from 2.4 percent earlier. "The current downward revision in our CAD forecast is led by Citi's lower oil price view," Chakraborty said.
"Oil prices have fallen sharply over the last two months towards the mid-$80/barrel level and are likely to remain subdued over the next year." The fall in oil prices would likely offset weaker export growth, keeping the average monthly goods trade balance at around $23.5 billion in the next fiscal year, Citi estimates. Expected fall in oil prices could weigh down CAD by 0.9 percent in the 2023-24 fiscal year, Chakraborty said.
On the exchange rate, Citi expects USD/INR to remain around 83 in the near term and to move to 79-80 in the second half of 2023, driven by a more decisive turn in the dollar cycle.
Meanwhile, India's unemployment rate rose to 8.30 percent in December, the highest in 16 months, from 8.00 percent in the previous month, data from the Centre for Monitoring Indian Economy (CMIE) showed. The urban unemployment rate rose to 10.09 percent in December from 8.96% in the previous month, while the rural unemployment rate slipped to 7.44 percent from 7.55 percent, the data showed.
Mahesh Vyas, managing director of the CMIE, said the rise in the unemployment rate was "not as bad as it may seem," as it came on top of a healthy increase in the labour participation rate, which shot up to 40.48 percent in December, the highest in 12 months. "Most importantly, the employment rate has increased in December to 37.1 percent, which again is the highest since January 2022," he told Reuters.
Containing high inflation and creating jobs for millions of young people entering the job market remain the biggest challenge for Prime Minister Narendra Modi's administration ahead of national elections in 2024.
The main opposition Congress party launched a five-month long cross-country march in September from the southern city of Kanyakumari to Srinagar, in Jammu and Kashmir region, to mobilise public opinion on issues such as high prices, unemployment and what it says are the divisive politics of Modi's Bharatiya Janata party.
"India needs to move from a single focus on GDP growth to growth with employment, skilling of youth and creating production capacities with export prospects," Rahul Gandhi, senior leader of the Congress party, who is leading party's 3,500 kilometre(2,175 mile) march on foot, told reporters.
The unemployment rate had declined to 7.2 percent in the JulySeptember quarter compared to 7.6 percent in the previous quarter, according to separate quarterly data compiled by state run National Statistical Office (NSO) and released in November.
In December, the unemployment rate rose to 37.4 percent in the northern state of Haryana, followed by 28.5 percent in Rajasthan and 20.8 percent in Delhi, CMIE data showed.