The current account deficit is eminently manageable and within the parameters of viability, according to Reserve Bank of India Governor Shaktikanta Das.

The average current account deficit (CAD) to GDP ratio stood at 3.3 per cent during H1:2022-23 against 0.2 per cent in the year ago period. CAD arises when a country is importing more goods and services than it is exporting.

“The slowing global demand is weighing on merchandise exports; but our exports of services and remittances remain strong. The net balance under services and remittances remains in a large surplus, partly offsetting the trade deficit.

“Consequently, the current account deficit is eminently manageable and within the parameters of viability,” Das said in his keynote address at the 22nd FIMMDA-PDAI Annual Conference, Dubai.

The Governor observed that on the external front, de-globalisation and protectionism are gaining ground as witnessed during the recent global supply-chain shock.

“It is thus necessary to build and strengthen bilateral trade relations to deal with such challenges. India has recently signed bilateral trade agreements with the UAE and Australia and more such agreements are works in progress,” Das said.

Worst behind us

The Governor observed that in the aftermath of multiple shocks, the global economy is projected to contract significantly in 2023.

“The worst for the global economy, both in terms of growth and inflation, seems to be behind us.

“Lately, with some ebbing of Covid-related restrictions and cooling of inflation in various countries, though still elevated, central banks have started what appears to be a pivot towards lower rate hikes or pauses,” he said.

At the same time, the central banks continue to emphatically reiterate their resolve to bring inflation down closer to targets.

“High policy rates for a longer duration appear to be a distinct possibility, going forward. On the growth front, projections are now veering around to a softer recession as against a severe and more widespread recession projected a few months back,” Das said.

Indian economy remains resilient

The Governor emphasised that in this hostile and uncertain international environment, the Indian economy remains resilient, drawing strength from its macroeconomic fundamentals.

“Our financial system remains robust and stable. Banks and corporates are healthier than before the crisis. Bank credit is growing in double digits. India is widely seen as a bright spot in an otherwise gloomy world,” he said.

The Governor said that India’s inflation remains elevated, but there has been a welcome softening during November and December 2022. Core inflation, however, remains sticky and elevated.

Das assessed that going forward, greater challenges will emerge as the footprints of Indian banks increase in the offshore markets, the range of products expand, non-resident participation in domestic markets grows and as capital account convertibility increases.

“Market participants will have to prepare themselves to manage the changes and the risks associated with globally integrated markets. The achievement of desired outcomes is contingent on financial institutions and market participants taking forward the reform agenda so that we have more vibrant and resilient financial markets,” he said.