Economic Survey 2023: Rupee May Remain Under Depreciation Pressure

Amid geopolitical situation and tightening of monetary policy by the US Fed, the Indian rupee has remained under pressure and even breached the 83-mark to a US dollar

Strong domestic demand amid high commodity prices will raise India's total import bill and contribute to unfavourable developments in the current account balance, according to the Economic Survey.

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The Indian rupee may remain under depreciation pressure on account of plateauing of exports and subsequent widening of the current account deficit, said the Economic Survey 2022-23 tabled in Parliament on Tuesday. It said the "risks to the current account balance stem from multiple sources".

The country's current account deficit (CAD) widened to 4.4 per cent of the GDP in the quarter ended September from 2.2 per cent in April-June due to higher trade gap, as per latest data of the Reserve Bank of India.

In the opening trade on Tuesday, the rupee depreciated 12 paise to 81.64 against the US dollar, weighed down by significant foreign fund outflows and a muted trend in domestic equities.

Amid geopolitical situation and tightening of monetary policy by the US Fed, the Indian rupee has remained under pressure and even breached the 83-mark to a US dollar. According to the survey, while commodity prices have retreated from record highs, they are still above the "pre-conflict" (Russia-Ukraine war) levels.

Strong domestic demand amid high commodity prices will raise India's total import bill and contribute to unfavourable developments in the current account balance, it said. "These may be exacerbated by plateauing export growth on account of slackening global demand. Should the current account deficit widen further, the currency may come under depreciation pressure," said the key document released a day before presentation of Union Budget 2023-24.

Sounding a note of caution, the key government document, which was tabled in Parliament by Finance Minister Nirmala Sitharaman, said the challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Federal Reserve.

"The widening of CAD may also continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year," the Survey said.

The survey is a government commentary on the economic developments and related aspects during 2022-23.