India’s current account deficit (CAD) is expected to ease in the second half of this fiscal and remain within “sustainable limits”, with further moderation seen in FY24, as per the Economic Survey for FY23.
While export growth will inevitably ease in a slowing global economy, a likely easing of crude oil prices, resilience of net services exports and buoyancy in inward remittances will prop up the current account, it added.
Nevertheless, the Survey cautioned that deficit needs constant vigil, as any swift economic recovery driven mainly by domestic demand and, to a lesser extent, by exports will pose upside risks. The CAD had hit a nine-year high of 4.4% of GDP in Q2. Several analysts have projected the FY23 CAD at 3-3.5%, against 1.2% in the previous year. “The CAD needs to be closely monitored as the growth momentum of the current year spills over into the next,” it added.
At the same time, the Survey stated that while the continued softening of the global commodity price outlook would support moderate imports going forward, non-gold and non-oil imports may not decelerate significantly. This indicates domestic demand will likely remain relatively strong in FY24 as well.
Also, various export promotion measures are being considered and implemented, as the government recognises the key role exports play in boosting the resilience of the external sector from a medium-to-long-term perspective. Goods exports contracted in two of the past three months, though growth in outbound shipments still remained 10.2% until December this fiscal, mainly due to a surge in initial months.
Services exports, however, remains the bright spot, having maintained over 20% growth so far this fiscal. Merchandise imports, meanwhile, jumped almost 25% in the first three quarters, although the pace of growth has decelerated sharply in recent months.
The external sector has been hit by shocks and uncertainty manifested in terms of elevated, though now easing, global commodity prices and tightening international financial conditions, among others. “However, it has been able to face these headwinds from a position of strength on the back of strong macroeconomic fundamentals and buffers,” it said.