India’s current account deficit (CAD) is likely to widen in the June quarter to 1.8-2.0 per cent of GDP while for the current financial year, it is likely to remain under control, says a DBS report.
According to the global financial services major, though the widening of CAD is likely to raise concerns “briefly” over wider trade imbalances, the full-year CAD is likely to remain within control.
“India’s current account deficit is likely to widen anew in the June 2015 quarter, but will not emerge as a flash-point for the full-year FY15/16 (April 2015 to March 2016),” DBS said in a research note.
As per official figures, the CAD, which is the difference between the inflow and outflow of foreign exchange shrank to 1.3 per cent of GDP (USD 27.5 billion) in 2014-15 from 1.7 per cent (USD 32.4 billion) in 2013-14.
The Reserve Bank of India and the government have been maintaining that the CAD level is comfortable.
The DBS report said that on quarter-on-quarter basis imports rose 2.8 per cent in the June quarter while exports fell 5 per cent. Moreover, service sector trade surpluses also fell for three successive months to May 2015.
DBS expects the April-June current account deficit to widen to 1.8-2.0 per cent of GDP, from 0.3 per cent in the quarter before.
The DBS report noted that the full-year CAD is likely to remain within control, at less than 2 per cent of GDP.
“More importantly, financing the current account deficit will not be a hurdle given sustained portfolio inflows and supportive FDI flows,” DBS added.
The net accretion to forex reserves was USD 11.4 billion on a BoP basis, which was marginally higher than USD 11.2 billion a year ago, RBI said.
If we include the effects of currency valuations, there was a wider change in forex reserves for the June period, the central bank said, adding that it grew to USD 14.4 billion this year as against USD 11.9 billion last year.
External commercial borrowings were at a negative USD 1.3 billion for the period, as against USD 1.3 billion a year ago, the data showed.
The CAD had narrowed to 0.2 per cent of GDP in the March quarter, its lowest in a year, as global oil prices slumped while foreign investments remained robust.
The March quarter CAD was a stark turnaround from the record high of 4.8 per cent of GDP registered in FY13.