India’s Current Account Deficit May Worsen In FY 2023

India’s current account deficit may worsen in FY 2023, Finance Ministry released this report: Current Account Deficit.

If slowdown concerns do not lead to a sustained and meaningful reduction in the prices of food and energy goods.

India’s current account deficit, that is, the gap between imports and exports could narrow, leading to a worsening of the Indian current account deficit in 2022-23.

The Finance Ministry has said this in its monthly economic review report.

A softening in global commodity prices may keep inflation under check, but reducing India’s current account deficit requires a sharp decline in their higher levels as well.

Let us tell you that there has been a sudden and sharp jump in gold imports in the midst of the wedding season, as many weddings were postponed from 2021 to 2022.

The pressure on the trade deficit has also increased due to the restrictions imposed due to the pandemic.

The country’s trade deficit widened to US$ 45.18 billion in the April-June 2022 period as compared to US$ 5.61 billion in the same period last year.

To reduce the impact, the government has recently increased the customs duty on gold to 15.0 percent from the current 10.75 percent.

However, the fall in the current account deficit may ease with an increase in services exports, in which India is more competitive globally than merchandise exports.

The Indian rupee has depreciated by 6 percent against the US dollar since January 2022 due to the widening current account deficit and is on the verge of touching the 80 mark.

Apart from the depreciating rupee, the fluctuating imports have also become costlier due to the rise in global commodity prices, making it more difficult to reduce the CAD, the report said.

A depreciating rupee usually makes imported goods costlier. India’s foreign exchange reserves have declined by USD 34 billion in the six months since January 2022.

However, despite the shocks in commodity prices over the past four months, the momentum in the Indian economy has remained better than expected.