Eco Survey 2023: Caution ahead - CAD could widen further

The Economic Survey has cautioned that the country’s current account deficit, or CAD, needs to be closely monitored as it may widen on account of high commodity prices, strong domestic demand and plateauing export growth due to slackening global demand.

India’s CAD widened to 4.4% of the GDP in the quarter ended September, up from 2.2% of the GDP during the April-June period, due to a higher trade gap. The survey has highlighted that if the CAD widens further, the currency may come under depreciation pressure.

“The slowing demand will likely push down global commodity prices and improve India’s CAD in FY24. However, a downside risk to the current account balance stems from a swift recovery driven mainly by domestic demand, and to a lesser extent, by exports,” said the survey, which has pegged GDP growth at 6-6.8% in FY24.

“The loss of export stimulus is further possible as slowing world growth and trade shrink the global market size in the second half of the current year, as the growth momentum of the current year spills over into the next,” it said.

The survey noted that easing crude oil prices and buoyant inward remittances would result in lower CAD during the remainder of FY23. “For FY23, India has sufficient forex reserves to finance the CAD and intervene in the forex market to manage volatility in the rupee.” India’s foreign exchange reserves, as per the data in the survey, stood at $532.7 billion as of end-September 2022, covering 8.8 months of imports.

“A slower growth in economic output coupled with increased uncertainty will dampen trade growth,” the survey said, adding that this is seen in the lower forecast for growth in global trade by the WTO, from 3.5% in 2022 to 1% in 2023.