He said this while addressing the International Monetary Fund Committee at the annual meeting of the World Bank and the International Monetary Fund (IMF) last Friday.
“India’s foreign exchange reserves stood at USD 537.5 billion as of September 23, 2022, compared to most peer economies, with two-thirds of the decline in reserves coming from a stronger US dollar and higher US bond yields,” Sitharaman said.
In fact, in Q1: 2022-23, there is an increase of USD 4.6 billion in forex reserves according to the balance of payments (BoP). Other external indicators such as the net international investment position and short-term debt indicate lower exposure, he said.
India’s foreign exchange reserves fell by $4.854 billion to $532.664 billion on September 30, according to the Reserve Bank of India (RBI).
The decline in reserves in the week ended September 30 was a major component of total reserves due to dip in foreign currency assets (FCAs), the weekly statistical supplement released by the RBI said.
According to Sitharaman, import inflation is a risk exacerbated by continued US dollar inflation.
Indeed, inflation has remained at or above the upper tolerance limit of 6 percent since January 2022, she said.
In this context, Sitharaman said, monetary accommodation has continued to curb inflationary pressures, maintain inflation and contain second-round results. India is in a better position than other advanced or emerging market economies, she said.
In this tumultuous global environment, India’s external financing position will remain favorable despite the widening of current account deficit (CAD) to 2.8 percent and trade deficit to 8.1 percent in Q1:2022-23, the minister said.
A higher trade deficit is expected due to growth in exports of services and increased remittances. Overall, CAD is estimated to be around 3 percent of GDP. This deficit sequence is financially manageable as portfolio flows stabilize and foreign direct investment (FDI) remains strong, she said.
The transformation of the corporate sector and the banking sector provides a buffer to absorb risks in the economy. In the pre-pandemic period, these sectors suffered from the twin account balance problem. She added that recovering their balances is a priority.
Sitharaman said the soft interest rates during the Covid-19 years helped corporates restructure their debt and reduce interest costs. The debt equity ratio has come down to 0.5. Lower corporate tax rates at pre-Covid-19 levels have helped corporations absorb the shock of the pandemic.
Similarly, the banking sector posted a six-year low in non-performing assets (NPAs) and slippage ratio, while capital to risk-adjusted assets ratio (CRAR) and provident coverage ratio (PCR) rose, she said.
India has seen strong credit growth at 15 percent in September 2022. The total inflow of wealth in the corporate sector so far is five times more than last year’s mobilization.
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