New Delhi: Of India current account deficit (CAD) likely to worsen in the current financial year: costly imports and humming export of goodsAccording to the monthly economic review of the Ministry of Finance.
The review released by the ministry on Thursday also said that global adverse conditions will continue to pose a downside risk to growth as crude oil and food items, which have driven inflation in India, remain the major imported components in the consumption basket.
For the present, it said, “their global prices have softened, as fears of a recession have driven prices down to some extent. This will ease inflationary pressures in India and rein in inflation.”
If slowdown concerns do not lead to a sustained and meaningful reduction in food and energy commodity prices, “India’s CAD (current account deficit) will worsen in 2022-23 due to costly imports and exports on the trade account.”
The CAD stood at 1.2 per cent of GDP in 2021-22, mainly driven by an increase in the trade deficit. Analysts expect the CAD to expand to 3 per cent of GDP in the current fiscal.
However, the fall in CAD may ease with an increase in services exports, in which India is more competitive globally than merchandise exports, the report said, adding that the Indian rupee depreciated by 6 per cent against the US dollar due to the rise in CAD. I have come Percentage from January of 2022.
However, the rupee has performed well in 2022 as compared to other major economies in contrast to 2013, where it depreciated relative to other major economies, thus, reflecting the strong fundamentals of the Indian economy.
It added that the depreciation of the rupee, coupled with a rise in global commodity prices, has also made imports costlier, making it more difficult to reduce the CAD.
To meet the financial needs of rising CAD and rising FPI outflows, foreign exchange reserves have declined by $34 billion in the six months from January 2022, it said.
To further diversify and expand the sources of foreign exchange funding so as to reduce volatility and reduce global spillovers, measures taken by RBI to enhance foreign exchange inflows while ensuring overall macroeconomic and financial stability have been done.
These measures include lifting of interest rate caps, relaxation of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on incremental foreign currency non-resident (bank) FCNR (B) and non-resident (external) rupee (NRE) fixed deposits. On these deposits, norms for FPIs in the credit market relaxed, external commercial borrowing limits increased under the automatic route.
Regarding commodity prices, downside risks to growth in global adverse conditions remain as crude and edible oils, which have driven inflation in India, remain the major imported components in the consumption basket, the report said. Huh.
For the time being, their global prices have softened, as fears of a recession have driven the prices down somewhat. This will reduce the inflationary pressure in India and keep inflation in check.
In addition, it said, various measures taken by the government to reduce inflationary pressures may also contribute to containing inflation. The government has increased the customs duty on gold to 15.0 per cent from the current 10.75 per cent to reduce the impact.
However, as long as retail inflation in India remains above the RBI’s tolerance level of 6 per cent, as it is still at 7 per cent in June 2022, stabilization policy measures will continue to be the test of balancing inflation and growth concerns. Will happen. ,
On the positive side, the report said, agriculture is gaining momentum with revival in monsoon and kharif sowing. The geographical distribution of rainfall has also improved significantly. It is very low slant.
It added that improved international agricultural prices have increased real purchasing power in rural areas and trade conditions for agricultural commodities have remained positive since March 2022.
This has ushered in an improvement in rural demand, although some indicators have still not recovered to pre-pandemic levels.
With regard to the corporate sector, the report said, it has started showing signs of revival with strong growth in net sales for the quarter ended March 2022, leading to a general recovery in demand.
Better infrastructure of the corporate sector and a well-capitalized financial system has instilled confidence among investors, it said, adding that private equity and venture capital investments in the first two months of the first quarter of 2022-23 were above their levels in the same period. have risen. of last year.
The government’s continued focus on expanding capital expenditure has resulted in its year-on-year growth of 70.1 per cent in May 2022.
To further facilitate capex, the government has also announced rules for disbursement of Rs 1 lakh crore in interest free capex loans to states.