Friday, 17 May, 2024
India recorded a current account deficit (CAD) of 1.2% of GDP in 2021-22 against a surplus of 0.9 percent in 2020-21
Countering ongoing geo-political and rising global uncertainties, India’s merchandise exports touched a record $420 billion in 2021-22, led by robust growth in petroleum products, engineering, gems and jewellery, chemicals, and pharmaceuticals. The country registered a growth of 23.52 percent in last year.
On a worrisome note, India’s trade deficit ballooned to a record of $26.18 billion in June from $24.3 billion in May, exerting pressure on the domestic currency which has been trading at a record low against the US dollar. According to finance ministry's monthly economic review, India's CAD (current account deficit) will further deteriorate in 2022-23 on account of costlier imports and tepid exports on the merchandise account.
India recorded a current account deficit (CAD) of 1.2% of GDP in 2021-22 against a surplus of 0.9 percent in 2020-21. For the January-March 2022 quarter, the CAD narrowed on a sequential basis to $13.4 billion, or 1.5 percent of GDP, against $22.2 billion, or 2.6 percent of GDP, in the December 2021 quarter. The sequential decline in CAD in Q4:2021-22 was mainly on account of a moderation in trade deficit and lower net outgo of primary income.
According to the ministry, CAD is expected to deteriorate in 2022-23 if recession concerns do not lead to a sustained and meaningful reduction in the prices of food and energy commodities. The ministry believes a sudden and sharp surge in gold imports amid wedding season, as many weddings were postponed to 2022 from 2021 due to pandemic-induced restrictions, is also now exerting pressure on the trade deficit. In order to alleviate the impact, the government recently hiked the customs duty on gold from present 10.75 per cent to 15.0 per cent. However, it may not have a substantial impact as gold imports is less sensitive to higher taxes. According to a report by Bank of America Securities, India’s CAD could worsen to $105 billion in 2022-23.
The widening of current account deficit has depreciated the Indian rupee against the US dollar by 6 per cent since January of 2022, and is on the brink of touching 80 mark. This has affected India's import bill fueling domestic inflation which continues to breach RBI's comfort zone.
Although some parameters has shown hope for our economy. As mentioned above, merchandise exports has increased to a record high and services exports for the first time achieve the targeted of USD 250 billion in the 2021-22 financial year. Inflation and price index has shown marginal decline, while industrial production is increasing.
