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India Ratings and Research (Ind-Ra) in its latest report has said that the country's current account deficit (CAD) is likely to widen to a 13-quarter high of $23.6 billion or 2.8 per cent of GDP in October-December 2021-22 (Q3FY22) as against a deficit of $9.6 billion (1.3 per cent of GDP) in Q2 FY22, due to higher commodity prices following the Russia-Ukraine conflict. In Q3 FY21, the deficit was $2.2 billion (0.3 per cent of GDP).

Ind-Ra said although the Omicron-led COVID wave has subsided, the geopolitical risks to the global recovery have increased due to the Russia-Ukraine conflict. It said the direct effects of the Russia-Ukraine conflict have pushed commodity prices and freight and transportation costs higher; crude oil prices have been on a boil. In addition, the Indian rupee, which averaged at 75 against the dollar in February 2022, is expected to average around 76 this month which might result in a depreciation of 0.29 per cent in fourth quarter over the previous three-month period.

The agency further said that despite the adverse effects of the Russia-Ukraine conflict, the merchandise imports are likely to recover further due to the normalising domestic economy, higher commodity prices and depreciation of the rupee, pushing the merchandise imports bill to over $166 billion in Q4 FY22. The FY22 merchandise import bill is estimated at an all-time high of over $606 billion. However, the agency believes that merchandise exports might be constrained to $101.3 billion in Q4 FY22, taking it 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 Q4 FY22.