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India's FY22 current account deficit faces mild upside risk from high commodity prices, said Acuite Ratings & Research.

The wider merchandise trade deficits pulled India's Q2FY22 current account into the negative territory.

The current account swung into negative territory with a deficit of $9.6 billion in Q2FY22 from a surplus of $6.6 billion in the preceding quarter.

On Tuesday, official data showed that the country's merchandise trade deficit widened by 20.23 per cent on a year-on-year basis to $17.42 billion in January 2022 from $14.49 billion in the like period of 2021.

It had widened to $15.30 billion in January 2020.

Merchandise trade deficit has a significant impact on curent account deficit.

According to the ratings agency, on net basis, the merchandise trade deficit could remain elevated as the recent surge in global commodity prices would have an adverse impact on India's terms of trade.

"Hence, if current levels of commodity prices hold (or increase further) in the near term, then our estimate of India's current account deficit of $46 billion in FY22 could face a mild upside risk."

On the trade front, the ratings agency pointed out that both merchandise exports and imports contracted sequentially in January 2022 amidst the global and domestic backdrop of rapid spread of the Omicron variant.

"For the first ten months of FY22, cumulative trade deficit stands at $160 bn, higher than $141 bn deficit seen in the corresponding pre-pandemic period of FY20."