Current Account Deficit expected to deteriorate in FY23 on costlier import: FinMin Report

The review also said global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket.

India's current account deficit (CAD) is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports, according to the Finance Ministry's monthly economic review.

The review released on July 14 by the Ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket.

For the present, it said, "their global prices have softened, as fears of recession have dampened prices somewhat. This would weaken inflationary pressures in India and rein in inflation."

If recession concerns do not lead to a sustained and meaningful reduction in the prices of food and energy commodities, "then India's CAD (current account deficit) will deteriorate in 2022-23 on account of costlier imports and tepid exports on the merchandise account."

Primarily driven by an increase in trade deficit, the CAD stood at 1.2% of GDP in 2021-22. Analysts expects CAD may expand to 3% of the GDP in the current financial year.

The deterioration of CAD could, however, moderate with an increase in service exports in which India is more globally competitive as compared to merchandise exports, the report said, adding that the widening of CAD, has depreciated the Indian rupee against the U.S. dollar by 6% since January of 2022.