India’s balance of payments may slip into up to $50 billion deficit in FY23
New Delhi, Nov 9, 2022
However, the finance ministry is confident the deficit can be managed easily with forex reserves at a healthy $531 billion.
India’s balance of payments is likely to slip into up to $50 billion deficit in the current financial year, according to a report in the ET, which cited an internal assessment by the finance ministry.
The rupee may be under pressure due to the forex outflow but the government is confident the deficit can be managed easily with forex reserves at a healthy $531 billion.
“The balance of payments (BoP) will remain in deficit this year. Assuming no further major shocks going forward… the shortfall will be $45-50 billion this fiscal year, the initial estimation shows,” a senior finance ministry official told the financial daily.
The BoP records all the transactions (goods, services or assets) of the concerned country with the rest of the world across two broad heads— current account and capital account. In FY 22, it stood at a surplus of $47. 5 billion.
The Centre is working on revised estimates for the current fiscal year as a part of the budget exercise.
The widening trade deficit, or the gap between the value of imports and exports, puts pressure on the BoP. It is important to mention in this context that software exports and inward remittances and capital inflows are likely to be muted in the current fiscal year.
In the first half of FY 23, India had a merchandise trade deficit of $148 billion, almost double the $76 billion a year ago. The current account deficit (CAD) will be above 3 per cent of gross domestic product (GDP) but below 3.5 per cent, the daily quoted the official as saying. In FY 22, this deficit was 1.2 per cent of GDP or $38.7 billion.
Last month, the International Monetary Fund (IMF) projected that India would have a current account deficit equal to 3.5 per cent of its GD or $121 billion in 2022.
“This is a challenging year globally and we will have our own shocks. However, we are still in a comfortable position, and this (BoP deficit) can be comfortably managed,” the daily cited the official as saying.
More importantly, the official went on add that the pressure on the domestic currency is expected to continue for some time but a clearer picture will emerge by mid-December.