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Current account deficit expected to shrink in fiscal year 23 due to more expensive imports: Treasury Department report

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NEW DELHI: of India current account deficit (CAD) is expected to deteriorate in the current fiscal due to Import is more expensive and warm exported goodsaccording to the monthly economic report of the Ministry of Finance.
The department’s assessment released on Thursday also said global headwinds would continue to pose downside risks to growth as crude and cooking oils, which have fueled inflation in India, remained key components. main import in the consumer basket.
For now, it said, “their global prices have dropped, as recession fears have dampened prices somewhat. This will weaken inflationary pressures in India and curb inflation.”
If recession fears do not lead to a sustained and meaningful reduction in food and energy commodity prices, then India’s CAD (current account deficit) will worsen in 2022- 23 due to more expensive imports and poor exports on commodity accounts. ”
Primarily driven by the widening trade deficit, the CAD stands at 1.2% of GDP in 2021-22. Analysts expect CAD to grow to 3% of GDP in the current financial year.
However, the decline in the CAD could be moderated by an increase in services exports, where India is more globally competitive as compared to goods exports, the report said, adding that the expansion CAD, has devalued the Indian rupee against the US dollar by 6 percent since January 2022.
However, the rupee has performed well in 2022 against other major economies, unlike 2013, when the rupee depreciated against other major economies, thus reflecting fundamental factors strong version of the Indian economy.
A falling rupee, coupled with higher global commodity prices, also makes imports more price inelastic, thus making it more difficult to depreciate the CAD.
To meet the ever-expanding CAD financing and increased FPI flows, foreign exchange reserves, in the six months from January 2022, fell by $34 billion, it said.
In order to further diversify and expand foreign exchange funding sources to minimize volatility and minimize global spillovers, the RBI has taken measures to enhance foreign exchange capital flows while ensuring ensure macroeconomic and financial stability in general.
These measures include exemptions from the Cash Reserve Ratio (CRR) and the Statutory Liquidity Rate (SLR) for the increased foreign currency deposits of Non-Residents (Banks) FCNR (B) and Non-Resident (Outside) Rupees (NRE), raising the interest rate ceiling on these deposits, loosening FPI norms in the debt market, increasing the limit of external commercial loans according to the automatic route.
In terms of commodity prices, the report said, global headwinds continue to pose downside risks to growth as crude and cooking oils, which have driven inflation in India, remain the major importers. main export in the consumer basket.
Currently, their global prices have dropped as recession fears have dampened prices somewhat. This will weaken inflationary pressures in India and curb inflation.
In addition, it said, the various measures the government took to curb inflationary pressures could also contribute to limiting inflation. The government has increased the customs duty on gold from the current 10.75% to 15.0% to lessen the impact.
However, as long as retail inflation in India continues to be above the RBI’s tolerable level of 6%, which remains at 7% in June 2022, stabilizing policy measures will need to continue. tighten the balance between inflation and growth concerns. .
On the plus side, the report said, agriculture is regaining momentum with a resurgence during the monsoon and Kharif seeding. The geographical distribution of precipitation has also improved significantly. It is much less skewed.
Rising international agricultural prices have lifted real purchasing power in rural areas on the condition that trade in agricultural commodities has remained positive since March 2022, it said.
This has stimulated a recovery in rural demand, although some indicators have yet to recover to pre-pandemic levels, it added.
As for the corporate sector, the report said, it was starting to show signs of revival with strong growth in net revenue in the quarter ended March 2022, supported by an overall recovery in demand.
Improved corporate sector fundamentals and a well-capitalized financial system instilled confidence in investors, it added, private equity investments and investments. Risks in the first two months of Q1 2022-23 have risen above their levels for the corresponding period. of the previous year.
The government’s sustained focus on expanding capital spending has resulted in its annual growth of 70.1% in May 2022.
To further facilitate investment capital, the government has also announced rules for disbursing Rs 10,000 crore in interest-free loans to the states.

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Teja
Teja
I am passionate about journalism and using new technology to spread news. I am also interested in politics and economics, and I am always looking for ways to make a difference in the world. I am the CEO of Janaseva News, and I am 24 years old.

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