will weather this storm. spillovers and external resilience 4 / 7 bis central bankers'speeches it is the health of a country ’ s external sector that shields it from international spillovers in a globalised world. the state of the external sector reflects the underlying macroeconomic fundamentals, which i have just discussed. to illustrate, the domestic saving - investment gap of the private and public sectors is the mirror image of the difference between exports and imports of goods and services or what is widely known as the current account balance which, in turn, is financed by capital flows. if net capital flows exceed or fall short of the current account balance, there is either a build - up or drawdown of foreign exchange reserves. likewise, inflation seeps into the external sector by influencing the prices of exports, while being influenced by the prices of imports. inflation differentials between a country and the rest of the world determine the underlying level of the exchange rate. typically, a country enjoying robust growth prospects with price stability becomes a preferred habitat for capital flows from abroad while a country with a poor growth outlook and / or high inflation is likely to face capital outflows. while spillovers are global and inescapable, macro - fundamentals are national and offer a bulwark against shocks that originate beyond national borders. in 2022, india faces similar risks as in 2013 from surging international crude prices and the volume of gold imports. yet, the external sector is much more viable than it was in 2013. even with import demand strong on the back of a recovering economy and the average international crude prices currently above us $ 100 per barrel, the current account deficit is expected to remain within 2. 5 per cent of gdp, having averaged 1. 1 per cent of gdp during 2014 – 21. by contrast, taper 2013 had been preceded by the current account deficit averaging 3. 7 per cent during 2009 – 13, with a peak of 6. 8 per cent in the third quarter of 2012 – 13. the improvement in the current account in the recent period and going forward draws strength from robust export performance, both goods and services, with targets set at us $ 450 billion and us $ 300 billion, respectively, for 2022 – 23. in 2012 – 13, however, exports of goods and services were flat and remained subdued in the following year. adding to the export potential going forward into 2022 – 23 is the focus on bilateral trade agreements and the steps being taken to impart competitiveness

on the other hand, prospects for the easing of food inflation remain bright with record production and buffer stocks. strong supply - side interventions and increase in domestic production can check inflation - sensitive pulses and edible oil prices, though spillovers from the geopolitical situation cannot be ruled out. while cost - push pressures on core inflation remain elevated, selling prices of businesses remain subdued due to low passthrough of input cost pressures, given the large amount of slack in the economy. while the fallout of the geopolitical situation is being assessed and will be factored into our projections, it is reasonable to treat it as a supply shock at this stage in the setting of monetary policy. 1 the output gap is a measure of the difference between actual output and its potential level or trend. when actual output is above potential, demand is rising, and the output gap is positive. when actual output is below its potential, demand is weak, and the output gap is negative. 2 consumer price index for industrial workers 6 / 7 bis central bankers'speeches 3 fiscal impulse is defined as the change in the cyclically adjusted primary deficit. 7 / 7 bis central bankers'speeches