India Set To Post Balance Of Payment Deficit For Second Straight Year: Standard Chartered Bank

According to Standard Chartered, India will post a BoP deficit of $24 billion this fiscal year and $5.5 billion in the next. India saw a rare BoP surplus of $47.5 billion in FY20-21

The balance of payments (BOP) is a statement of all transactions that occurred between entities in one country and the rest of the world over a specified time period such as a quarter or a year.

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Standard Chartered Bank of Friday said that India will post a balance of payment (BoP) deficit for the second straight year in the next fiscal, reported Reuters. Bank said this would be the country's first such instance in two decades. According to Standard Chartered, India will post a BoP deficit of $24 billion this fiscal year and $5.5 billion in the next. India saw a rare BoP surplus of $47.5 billion in FY20-21. 

The balance of payments (BOP) is a statement of all transactions that occurred between entities in one country and the rest of the world over a specified time period such as a quarter or a year. It summarises all transactions among individuals, businesses, and governments within a country and individuals, businesses, and governments outside the country.

“Higher commodity prices, better growth in India compared to the rest of the world, and higher global interest rates amid cautious risk appetite could keep the C/A (current account)deficit wide and contain capital inflows in FY24," Anubhuti Sahay, head of South Asia Economic Research (India) at Standard Chartered Bank, India, said according to the report. 

Standard Chartered expects the current account balance to slip into a deficit of 3 per cent of GDP this financial year from a surplus of 0.9 per cent last year, before narrowing to 2.6 per cent in FY23-24. The bank said that the BoP dynamics next year could be dominated by an absolute CAD financing requirement of around $100 billion, given the chances of higher global rates keeping debt-investment inflows cautious. 

Cash against document financing or CAD financing is a method in which an importer pays for goods before receiving them to ensure the satisfaction of both parties.

"While the C/A deficit may appear more manageable, it still represents a large financing requirement in absolute terms, especially given the weak global growth backdrop. Our forecast of a smaller C/A deficit/GDP ratio in FY24 assumes a narrower trade deficit, but slower software and remittance inflows contributing to a large deficit size," the bank said.