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 India's trade deficit is likely to continue widening during the second half of the current financial year.

Kotak Economic Research report noted that imports in August increased further as economic activity continued to normalize and exports continued to be strong but have stagnated at the current levels, for now, leading to a widening of the trade deficit.

"We expect the current trend to continue in 2HFY22 and maintain our FY2022E CAD/ GDP estimate at 1.1 per cent. We continue to pencil in USD-INR within 72.5-74 in the near term," it said.

Exports in August increased 45.2 per cent to $33.1 billion but declined sequentially by 6.5 per cent. Non-oil exports at $28.6 billion increased 36.6 per cent while falling 3.3 per cent sequentially. Compared to August 2019, exports were higher by 27.5 per cent and non-oil exports increased by 25.5 per cent.

However, exports have been stagnating around the current levels after a sharp spike in March 2021. Top exports in August (over August 2020) were gems and jewellery (88 per cent), engineering goods (58.8 per cent), cotton and handloom products (55.6 per cent), and chemicals (35.8 per cent).

Imports in August increased 51.5 per cent to $47 billion while increasing sequentially by 1.3 per cent (July: $46.4 billion). Non-oil import was at $35.4 billion increasing 43.9 per cent, while increasing sequentially by 5.6 per cent. Compared to August 2019, imports were higher by 18 per cent and non-oil imports increased by 22.6 per cent.

"We expect the overall external sector to remain comfortable but will be subjected to risks from a widening trade deficit, high commodity prices, and policy normalization in the US, and spread of Covid cases," it said.