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India’s current account deficit worries: Focus on these two important priorities can give a long-term fix

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10.10.2018

-Richa Gupta & Umang Aggarwal

The impact of changing global dynamics, especially monetary policy normalisation and stronger dollar movement, has become visible across the Asian landscape. A key impact has been the downward currency movement, where the rupee has moved in tandem with its Asian peers. However, the rupee has seen the largest decline and currency movements are believed to remain under stress in the period ahead. This, coupled with upward pressure from oil prices, is expected to keep the imports bill high, given that oil imports make up for about 36% of total imports. With exports still benign, India is looking at an inflated current account deficit (CAD), which is expected to breach the 2.5%-mark in FY19.

In FY18, CAD was 1.9%, and is currently at 2.4% of GDP (Q1-FY19), largely driven by a widening trade deficit. Oil imports alone have led to a total outflow of over $108 billion in FY18, compared to $87 billion in the previous year, and with the expectations of crude oil remaining at elevated levels, coupled with currency devaluation which has already reached about 72 per dollar level, the imports bill can only be expected to rise. A major component to finance increase........

© The Financial Express