Current account deficit likely to further widen in second half

Elevated global commodity prices, revival in real economic activity driving higher domestic demand and growing uncertainty surrounding capital inflows may widen current account deficit further during the second half of the year, according to the Economic Survey 2021-22 released on Monday.

However, it is expected to be within manageable limits. India’s exports of both goods and services have been exceptionally strong so far in 2021-22.

Merchandise exports have been above $30 billion for eight consecutive months in 2021-22, despite a rise in trade costs arising from global supply constraints such as fewer operational shipping vessels, exogenous events such as blockage of Suez Canal and Covid-19 outbreak in the port city of China etc.

Concurrently, net services exports have also risen sharply, driven by professional and management consulting services, audio visual and related services, freight transport services, telecommunications, computer and information services.

From a demand perspective, India’s total exports are expected to grow by 16.5 per cent in 2021-22 surpassing pre-pandemic levels. Imports also recovered strongly with revival of domestic demand and continuous rise in price of imported crude and metals.

Imports are expected to grow by 29.4 per cent in 2021-22 surpassing corresponding pre-pandemic levels.

Resultantly, India’s net exports have turned negative in the first half of 2021-22, compared to a surplus in the corresponding period of 2020-21 with current account recording a modest deficit of 0.2 per cent of GDP in the first half.

However, robust capital flows in the form of continued inflow of foreign investment were sufficient to finance the modest current account deficit, the Survey said.

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