CAD will be sustainable, can be financed by normal capital inflows: RBI Guv

Reserve Bank of India (RBI) Governor Shakt­ikanta Das on Thursday said the current account deficit (CAD) will be sust­ai­nable and may be financed by normal capital inflows.

India’s CAD widened to $23 billion in the third quarter (Q3) of 2021-22 (FY22). This was 2.7 per cent of the country’s gross domestic product (GDP) due to higher trade deficit. CAD was $9.9 billion (1.3 per cent of GDP) in the second quarter of FY22 and $2.2 billion (0.3 per cent of GDP) a year ago (Q3 of 2020-21).

Das in his statement on the June monetary policy review had said optimism about exports — of both goods and services and remittances — should help contain CAD at sustainable levels, financed by normal capital flows. As on June 3, India’s foreign exchange reserves were of the order of $601.1 billion, sup­plemented by healthy levels of net forward assets of the RBI.  

With global crude oil prices surging above $100 per barrel — first time since 2014 — there are concerns over CAD widening beyond sustainable levels. According to rating agency ICRA, CAD is expected to reach $95-100 billion (2.7 per cent of GDP) in 2022-23, from the estimated $41.5-43.5 billion in FY22 (1.3 per cent of GDP).

Speaking at an event organised by the Central Board of Indirect Taxes and Customs, Das reiterated the central bank’s views on cryptocurrency, saying there are risks to financial stability.

“As far as the government is concerned, I cannot reply. The government has announced it will come out with a discussion paper. The RBI has conveyed its views to the government. The RBI is very clear about the huge risks to financial stability,” he said, while answering a question on the RBI vision of the use of cryptocurrency by the government for paying taxes, along with procurement.

As for new opportunities and challenges in businesses and start-ups, the RBI governor said “they should constantly evaluate the build-up of risks and vulnerabilities in their businesses”. Many of them may be doing it already and risk-taking is a part of their business model. These should always be kept in the back of one’s mind for long-term sustainability of any business, said Das.

Businesses are going through a redefining phase and adapting to the new realities emerging from the pandemic. The adoption of digital technologies and artificial intelligence is getting accelerated. These disruptive technologies offer opportunities to young enterprises to carve out a niche in a market dominated by incumbents.

A reflection of this is seen in the emergence of several start-ups in the Indian business landscape as young entrepreneurs experiment with ideas in digital payments, online retail, on-demand delivery, education, software and more, he said.

The number of unicorns, or new businesses valued at over $1 billion, is rising rapidly. These start-ups are supported by a new ecosystem of angel and venture funding, incubators and accelerators, as well as new patterns of consumption in society, added Das.