Even as the crude oil price is rising and gold imports remain high, Finance Minister Nirmala Sitharaman has said the government is carefully monitoring the current account deficit (CAD) situation, adding that the RBI recently took steps to increase foreign exchange inflows to narrow the deficit.
India’s current account deficit stood at 1.2 per cent of GDP in 2021-22 against a surplus of 0.9 per cent in FY2020-21 due to a wider trade deficit. For the January-March 2022 quarter, the CAD had narrowed on a sequential basis to $13.4 billion or 1.5 per cent of GDP against $22.2 billion or 2.6 per cent of GDP in the December 2021 quarter.
During the current financial year, the country’s CAD is likely to reach $105 billion, or 3 per cent of the GDP, due to the country’s steadily growing trade deficit, according to a report by Bank of America (BofA) Securities.
In a written reply to a query in Parliament, Sitharaman said the government recently raised customs duty on gold from 10.75 per cent to 15 per cent, to curb gold imports that is likely to reduce CAD. She said this while responding to questions on whether the government believes that India’s CAD will grow with the rising crude oil prices and if it has taken measures to reduce CAD and if so what are those steps.
She also said, “The size of India’s current account deficit depends on several factors including exports, imports, price of crude oil, among others. The government is carefully monitoring the CAD."
India’s merchandise exports in June jumped 23.52 per cent year-on-year to $40.13 billion, while imports increased 57.55 per cent to $66.31 billion. The country’s trade deficit ballooned to a record of $26.18 billion. The trade deficit had stood at $9.60 billion in June 2021. Cumulative exports in April-June 2022-23 rose about 24.51 per cent to $118.96 billion, while imports increased 49.47 per cent to $189.76 billion during the period.
The trade deficit during the first three months of this fiscal widened to $70.80 billion from $31.42 billion in the year-ago period.
To bolster the rupee and attract foreign investments into the country, the RBI has announced a slew of measures, including relaxations on cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on incremental FCNR(B) and NRE term deposits, easing rules for FPIs, and raising limits on external borrowings, among others.
“The Reserve Bank has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate dollar tightness with the objective of ensuring orderly market functioning," the central bank.
The RBI took fresh measures, including easing rules for FPIs, interest rates cap removed for FCNR and NRE term deposits and raising limits on external borrowings. The measures are aimed at stabilising the rupee and attracting foreign investments.