India’s current account deficit (CAD) is expected to widen to 1.6 per cent of GDP this year from 0.5 per cent in 2016, owing to higher commodity prices and an expected strong domestic recovery, says a report. According to the Japanese financial services major Nomura, stronger global demand and higher export prices are driving exports recovery, while the recovery in imports reflect higher commodity prices and likely improvement in domestic demand. “In 2017, we expect the CAD to widen to 1.6 per cent of GDP from 0.5 per cent in 2016 owing to higher commodity prices and an expected strong domestic recovery in the second half of 2017,” Nomura said in a research note.
The CAD — the difference between the value of imports of goods, services and investment incomes, and that of exports — increased to USD 7.9 billion, or 1.4 per cent of GDP, in October-December quarter of 2016.
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According to official data, exports continued their uptrend in March with a growth of 27.6 per cent year-on-year from 17.5 per cent in February. Import growth rose even faster to 45.3 per cent in March from 21.8 per cent in February.
Since the start of this year, the Indian rupee has appreciated steadily in line with other emerging market currencies which is a reflection of the strength in Indian economy. The rupee is currently hovering around the 64-level mark against the dollar.
Overall, the trade data suggest that stronger global demand and higher export prices are driving the exports recovery. However, there are risks to this uptrend from protectionist policies in the US, a slowdown in China and fading price effects, Nomura said.