The main difficulty will come in FY23 as unfavourable global conditions further strain the CAD. India’s current account deficit increased significantly in FY22.
The current account deficit (CAD) of India increased from $23.7 billion (0.9 percent of GDP) in FY21 to $38.7 billion (1.2 percent of GDP) in FY22.
The greater deficit is to be expected given that the cost of oil and petroleum products for the economy during the year increased due to a rise in global oil prices. The outcome was a $185.5 billion increase in the trade imbalance.
Economists anticipate that the CAD will continue to widen in the upcoming year due to the likelihood that oil prices would remain high. Additionally, the likelihood of a US recession has increased, which might hurt export prospects given that the US continues to be India’s top export market for products and services.
The CAD’s financing is another difficulty. Despite continued portfolio outflows, foreign direct investments (FDI) rescued the day in FY22. Inflows were also aided by the decline in corporate dollar borrowing. But in FY23, funding expenses might raise the amount borrowed commercially. The funding of the CAD may prove difficult when combined with portfolio withdrawals. India’s balance of payments is heading down a difficult road.