NEW DELHI: The government appears cautiously hopeful about keeping India's current account deficit (CAD) within allowable norms, despite experts' predictions that it will likely increase to 3% of GDP in the current fiscal year and is unlikely to decrease in the near future.
However, experts believe that it would be a difficult challenge given that the current fiscal year's current account deficit may increase to more than 3% of GDP.
According to the government, the current account deficit would steadily decrease as the price of global commodities including crude oil, fertilisers, and gold among others decline.
According to official sources, the aforementioned commodities use up a sizable portion of foreign currency, and since their prices are on the decline, the current account deficit will soon benefit from this.
Although Sher Mehta, economist and Director of Research at Virtuoso Economics, believes that the current account deficit is expected to widen in the near future, experts fully disagree with this estimate.
Given the prospects of a rapidly weakening global economic environment, exports are likely to fare worse over the coming 9 to 12 months, and most of the worsening of the current account deficit will be due to a widening trade deficit, he predicted. "In my estimation, the current account deficit will probably worsen to 3.4-3.5 percent of GDP and is likely to reverse only from the second half of 2023," he said.
The nation's monthly goods trade deficit has been increasing, surpassing USD 31 billion in July. According to a trade and industry observer, the current account deficit is anticipated to grow as imports rise and exports reach a plateau.
As seen by Finance Minister Nirmala Sitharaman's response to a question in Parliament during the just concluded Monsoon session, the government is wary about the growing current account deficit. However, the current account deficit is influenced by a number of variables, including imports, exports, and oil prices. However, experts feel that it is highly unlikely that it can be reversed in the immediate future.
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