“We expect CAD to remain eminently manageable during the current financial year” said RBI governor Shaktikanta Das in his monetary policy statement of Thursday. In Q1’2024-25 ( April-June) merchandise trade deficit widened as imports grew faster than exports. Buoyancy in services exports49 and strong remittance receipts are expected to keep CAD within sustainable level in Q1:2024-25.
As for the past trend CAD moderated to 0.7 per cent of GDP in 2023-24 from 2.0 per cent of GDP in 2022-23 due to a lower trade deficit and robust services and remittances receipts.
The government’s latest economic Survey highlights the positives for services exports. For services, India’s improving integration in global value chains (GVCs) as well as a thriving Global Capability Centre (GCCs) landscape has led to a steady improvement in India’s services exports, the Survey said. Besides, schemes like Atmanirbhar Bharat and PLI are likely to benefit India’s merchandise exports.
Highlighting the strength of the external sector the governor pointed that India’s external debt to GDP ratio declined to 18.7 per cent at end-March 2024 from 19.0 per cent at end-March 2023. The net International Investment position to GDP ratio improved from (-) 11.3 per cent to (-) 10.3 per cent during the same period.
On the external financing side, foreign portfolio investors turned net buyers inthe domestic market from June 2024 with net inflows of US$ 9.7 billion during JuneAugust (till August 6) after witnessing outflows of US$ 4.2 billion in April and May.Foreign direct investment (FDI) flows picked up in 2024-25 as gross FDI rose by more than 20 per cent during April-May 2024, while net FDI flows doubled during this period compared to the corresponding period of the previous year. External commercial borrowings moderated during April-June 2024-25, while non-resident deposits recorded higher net inflows during April-May compared to the previous year.