India’s Current Account Deficit Pegged at 3-3.2% of GDP in FY23

Robust domestic economic activity and an uptick in oil import bills, India’s current account deficit is expected to be 3-3.2 per cent of gross domestic product (GDP) for FY23, according to Chief Economic Advisor (CEA) V Anantha Nageswaran.

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More About This Development:

India’s current account balance recorded a deficit of 1.2 per cent of GDP in 2021-22, against a surplus of 0.9 per cent in 2020-21.

The Reserve Bank of India expects CAD to have widened modestly in the first half (April-September 2022) but shrink in the second half (October 2022-March 2023). Overall, CAD is expected to be under 3 per cent of GDP for FY23.

What CEA Said:

CEA Nageswaran said India’s annual import cover remains quite comfortable and the International Monetary Fund (IMF) does not consider India’s external sector to be in a zone of vulnerability.

What The RBI Assess:

According to the RBI’s assessment (in the state of economy report), India’s foreign exchange reserves at $ 530.0 billion, as on November 4, covered 8.6 months of imports projected for 2022-23. The foreign exchange reserves’ cover of imports (on a balance of payments basis) declined to 10.4 months at end of June 2022, from 11.8 months at the end of March 2022.

About The Current Economic Situation:

A real GDP growth rate of between 6.5-7.5% in 2022-23 is reasonable to expect at the current juncture, despite fresh uncertainties emerging from higher oil prices, said India’s chief economic advisor V Anantha Nageswaran.

When India suffered high headline retail inflation, it was witnessed moderate as compared to many other economies, which target inflation of 2% but are nearer to 8-10%, Nageswaran said. Central banks worldwide have violently targeted inflation instigated by confounding commodity prices due to Russia’s invasion of Ukraine by climbing key interest rates enormously this year, plus the RBI. This has obstructed the currencies and trade balance of emerging markets.

The Central Govt  believes that the country’s FY23 GDP growth will be between the Reserve Bank of India’s forecast of 7.2% and the International Monetary Fund’s prediction of 7.4%, he said.

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