India’s foreign exchange reserves continue to be comfortable

On India’s external sector, the Economic Survey states that it continues to be stable. Although the Current Account Deficit (CAD) increased to 2.1% of GDP in 2018-19, up from 1.8% in 2017-18, it is within manageable levels. 

 

The widening of the CAD has been driven by a deterioration in the trade deficit from 6% of GDP in 2017-18 to 6.7% in 2018-19. The rise in crude oil prices in 2018-19 led to the deterioration of the trade deficit. Acceleration in the growth of remittances has, however, prevented a larger deterioration of CAD.

The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman tabled the Economic Survey 2018-19 in Parliament today.

In funding the CAD, the total liabilities-to-GDP ratio, inclusive of both debt and non-debt components, has declined from 43% in 2015 to about 38% at the end of 2018.

Further, the share of foreign direct investment has risen and that of net portfolio investment fallen in total liabilities, thereby reflecting a transition to more stable sources of funding CAD. In sum, although the CAD to GDP ratio has increased in 2018-19, the external indebtedness continues to be on a declining path.

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