Imports come under scrutiny over widening CAD – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/indicators/imports-come-under-scrutiny-over-widening-cad/articleshow/92504240.cms

Synopsis

A senior government official said revenue authorities are being vigilant after the trade deficit hit a record $24.3 billion in May but ruled out any knee-jerk reaction that could impact the economic recovery underway.

The government has begun close monitoring of imports amid concerns over the rising current account deficit (CAD) that could undermine India‘s macroeconomic balance.

A senior government official said revenue authorities are being vigilant after the trade deficit hit a record $24.3 billion in May but ruled out any knee-jerk reaction that could impact the economic recovery underway.

“We are keeping a close watch… Officials have been asked to look at the import data,” the official said, adding that CAD is an area of concern.

The import of precious metals, especially gold, is under scrutiny. Gold imports surged about nine times to $7.7 billion in May 2022 from a year ago, while silver imports rose to $556 million.

Forex Reserve Provides Cushion
The figure was $15.4 million a year ago. The non-fuel imports that have seen high growth are electronic goods, leather and leather goods, and textiles.

India has in the past imposed restrictions or raised customs tariffs to curtail imports of certain goods. Such curbs could however undermine economic growth that has held firm in the current fiscal year despite multiple headwinds.

India’s current account balance showed a deficit of 1.2% of GDP in FY22 against a surplus of 0.9% in F21 as the trade imbalance widened to $189.5 billion from $102.2 billion a year ago. Fitch Ratings had said earlier this month that CAD could rise to 3.1% of GDP in FY23. The finance ministry had also flagged the issue in its latest monthly report.

lens

“India faces near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in inflation, and containing the current account deficit while maintaining a fair value of the Indian currency,” it had said.

Although the FY22 fourth-quarter deficit came in below expectations, it remains a cause for concern amid sharp portfolio outflows, economists said.

CAD for the quarter ended March dropped to $13.4 billion from $22.2 billion in the preceding one but was higher than the $8.1 billion in the year-earlier period.

“Concern persists, especially given elevated commodity prices,” said

ICRA

NSE -1.05 % chief economist Aditi Nayar. “We foresee a deficit of $100 billion this fiscal, just shy of the worrying 3.0% of GDP threshold.”

India’s $591 billion foreign exchange reserves provide a good cushion, but a prolonged period of high crude and commodity prices can erode that comfort. A high and swelling current account balance can lead to capital outflows, sharp currency depreciation, and raise imported inflation.

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