Economic Survey: CAD may continue to widen on high global commodity prices

The government’s annual Economic Survey report on Tuesday said that India’s current account deficit (CAD) may continue to widen as global commodity prices remain elevated. However, the country’s economy remains strong, the it said.

A few days back, Reserve Bank of India Governor Shaktikanta Das had said that CAD is eminently manageable and within the parameters of viability.

Speaking at the FIMMDA-PDAI Annual Conference in Dubai, the RBI Governor added that the net balance under services and remittances remains in a large surplus, partly offsetting the trade deficit. While slowing global demand is weighing on merchandise exports, exports of services and remittances remain strong, Das had said.

The latest central bank data shows the country’s CAD widened to 4.4 per cent of the GDP in the quarter ending September, from 2.2 per cent of the GDP during the April-June period due to a higher trade gap. 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,” according to the survey said. It added, “CAD needs to be closely monitored as the growth momentum of the current year spills over into the next”.

The rate of growth in imports has been faster compared to that of exports in the current financial year so far, leading to the widening of the trade deficit.

“The widening of CAD may also continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year,” the Survey stated.