India’s services exports continued to grow at a healthy pace in the first two months of 2023. “Better growth prospects of the gulf cooperation council (GCC) countries are expected to keep remittances robust” RBI governor Das said. Inward remittances which is major source of strong positive flows in the current account- touched an all-time high of $ 107.5 billion during calendar year 2022.
“ The material narrowing of trade and current account deficits and range-bound INR must have offered the MPC better comfort for pursuing a more “Fed-independent” monetary policy “ Siddhartha Sanyal, chief economist and head of research, Bandhan Bank. “ It was important for the RBI to leave the policy rate at a level, which can be kept unchanged for a long time, as against hiking rates very aggressively now and building up pressure for cutting the same only in few months. ”
The CAD is expected to remain moderate in Q4:2022-23 and in the year 2023-24 at a level that is both viable and eminently manageable, governor Das said in his monetary policy statement. The optimism on the external front is based on the fact that merchandise trade deficit further narrowed during January and February 2023 from its level in September-December ‘ 22 quarter on the back of a sustained decline in imports.
The balance of payments ended in a surplus of $11.1 billion during the quarter as compared with $ 0.5 billion in the same period a year ago. This means there was a net gain in forex reserves though in nominal terms, reserves fell due to valuation losses.
Overall, India’s external sector indicators have improved significantly. Foreign exchange reserves have rebounded from $ 524.5 billion on October 21, 2022 and now stand in excess of $ 600 billion taking into account our forward assets.
“With the sharp deceleration in commodity prices due to global slowdown and resilient remittances & services surplus, the current account is expected to record a marginal surplus in 4QFY23” said Sunil Sinha, principal economist at India Ratings. “Overall, Ind-Ra expects the current account deficit to come in under 3% of GDP in FY’23.”