Costlier imports to widen CAD in FY23

New Delhi: India's current account deficit (CAD) is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports, according to the Finance Ministry's monthly economic review.

The review released on Thursday by the ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket. For the present, it said, "their global prices have softened, as fears of recession have dampened prices somewhat. This would weaken inflationary pressures in India and rein in inflation."

If recession concerns do not lead to a sustained and meaningful reduction in the prices of food and energy commodities, "then India's CAD (current account deficit) will deteriorate in 2022-23 on account of costlier imports and tepid exports on the merchandise account." Primarily driven by an increase in trade deficit, the CAD stood at 1.2 per cent of GDP in 2021-22. Analysts expects CAD may expand to 3 per cent of the GDP in the current financial year. The deterioration of CAD could, however, moderate with an increase in service exports in which India is more globally competitive as compared to merchandise exports, the report said, adding that the widening of CAD, has depreciated the Indian rupee against the US dollar by 6 per cent since January of 2022. The rupee, however, has performed well in 2022 compared to other major economies unlike in 2013, where it depreciated against other major economies, thus, reflecting strong fundamentals of the Indian economy.