India has “fairly large” foreign exchange reserves and concerns about their depletion are “overblown”, economic affairs secretary Ajay Seth said on Tuesday.
“The capital inflows have come down and at the same time the trade deficit is at a high level. But I don’t see any concern, as India has fairly large reserves,” he told reporters here.
The forex reserves dropped for a seventh straight week through September 16 to hit an almost two-year low of $545.65 billion, partly due to the central bank’s intervention to defend the rupee that hit a record low of 81.63 against the dollar on Monday. The reserves are still adequate to cover imports of about 8-9 months, compared with less than seven months during the 2013 taper tantrum.
The government, Seth told reporters here, will come out with a framework next month for floating its green bonds this fiscal. The Centre’s market borrowing calendar for the second half of FY23 will be announced on October 1, he added.
While the secretary refrained from commenting on the exact quantum of the green bond issue, analysts expect it to be between `20,000 crore and `35,000 crore. The realisation from it is expected to be a part of the second half borrowing programme. In the Budget for FY23, finance minister Nirmala Sitharaman had announced the issuance of such bonds this fiscal, which will be used for “green infrastructure”.
Seth stressed that the government is fully committed to its capex plan.
“We are absolutely clear about the road map for fiscal consolidation, and the support that the fiscal authority has to provide for spurring the economic activity through the capex route – these are fully on track,” he said.
The Centre has projected a fiscal deficit of 6.4% of gross domestic product (GDP) in FY23 and it aims to reduce it steadily to 4.5%by FY26.
It has budgeted a capex of `7.50 trillion for FY23, up 27% from the actual spending of `5.93 trillion in FY22, betting big on its high multiplier effect. Of course, about `1 trillion of the current fiscal’s target will be spent by states, as they have been provided loan support to boost their asset creation.
The Centre, which has put a thrust on capex to boost economic growth, continued the momentum by almost doubling the spending on year in July to `33,606 crore while it invested 62% more on year in April-July at `2.09 trillion.
The broad consensus among various agencies is that economic growth will be slowing down. However, volatility in global crude oil prices won’t alter the Centre’s fiscal deficit trajectory, the secretary said. Moreover, international prices of crude oil and some other commodities are moderating due to concerns about growth, he added.
A number of global agencies have trimmed their growth projections for India (and for the world) in recent months, after the Ukraine war pushed up global prices of commodities, especially of oil. The IMF has scaled down its FY23 India growth forecast to 7.4% from 8.2% projected in April. The World Bank, too, trimmed it to 7.5% from 8% and S&P to 7.3% from 7.8%. The Reserve Bank of India has pegged India’s FY23 growth at 7.2%, while the finance ministry expects it to be in the range of 7-7.5%.