An internal assessment by the Ministry of Finance indicates that India’s balance of payment is likely to fall short, up to $50 billion in the financial year of 2022-23. The rupee might continue to decline against the US dollar because of foreign exchange outflow, but the Center is confident that it will manage the deficit as the foreign exchange is still healthy, with $531 billion.
“The balance of payments (BoP) will remain in deficit this year. Assuming no further major shocks going forward… the shortfall will be $45-50 billion this fiscal year, the initial estimation shows,” a senior official from the finance ministry said.
The government is reworking estimations for the current financial year as a budget exercise. The gap between the export and import value badly impacts the balance of payments. Here, it is crucial to know that the export of software and capital inflow may be paused in the current financial year.
In the first two quarters of the financial year 2022-23, India’s merchandise trade witnessed a deficit of $148 billion, almost double of $76 billion the previous year’s deficit. Last month, the International Monetary Fund (IMF) estimated that India would have a current account deficiency equal to 3.5 percent of GDP, or $121 billion, in the financial year 2022-23
This is a challenging year globally, and we will have our own shocks. However, we are still in a comfortable position, and this (BoP deficit) can be comfortably managed,” an official from the finance ministry said.
The official didn’t deny that the pressure on the rupee will remain the same for some time, but things will be softened from mid-December.