India’s current account deficit under control – Das

The Reserve Bank of India (RBI) Governor, Shaktikanta Das, has said that India’s currency account deficit (CAD) is manageable. In the first two months of 2023, India’s services exports continued to grow at a healthy pace, and the inward remittances touched an all-time high of $107.5 billion in 2022. Governor Das expects the CAD to remain moderate in the current quarter and the year ahead.

The optimism on the external front is based on the fact that the merchandise trade deficit further narrowed during January and February 2023, indicating a sustained decline in imports. The balance of payments ended in a surplus of $11.1 billion during the quarter, leading to a net gain in forex reserves, although in nominal terms, reserves fell due to valuation losses.

Chief Economist and Head of Research at Bandhan Bank, Siddhartha Sanyal, believes that the narrowing of the trade and current account deficits and a stable INR exchange rate have given the RBI Monetary Policy Committee (MPC) the confidence to pursue a more “Fed-independent” monetary policy. It was important to keep the policy rate at a level that can remain unchanged for an extended period rather than hiking rates aggressively and building pressure for cutting them in the future.

Sunil Sinha, Principal Economist at India Ratings, also reportedly stated that with the deceleration in commodity prices due to the global slowdown and resilient remittances and services surplus, the current account is expected to record a marginal surplus in the current quarter, and the overall CAD is expected to come in under 3% of GDP in FY’23. Overall, India’s external sector indicators have improved significantly, with foreign exchange reserves rebounding from $524.5 billion in October 2022 to over $600 billion, taking into account the country’s forward assets.

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