India’s current account deficit is expected to widen to 1.5 per cent of GDP in 2017, from 0.6 per cent in 2016, but net capital flows are expected to more than fund this deficit, says a Nomura report. The Japanese financial services major said that the wider current account deficit in the second quarter and still- elevated trade deficit so far in July-August suggest that the current account deficit is set to widen sharply this year. Nomura expects current account deficit likely at 1.5 per cent of GDP in 2017 but noted that funding will not be a constraint. The current account deficit increased to $14.3 billion, or 2.4 per cent of gross domestic product (GDP) in the April-June quarter of this year. On a sequential basis, the CAD widened from $3.4 billion or 0.6 per cent of GDP in the January-March quarter.
“We expect India’s current account deficit to widen to 1.5 per cent of GDP in 2017, from 0.6 per cent in 2016, but we expect net capital inflows – higher net FDI inflows as well as portfolio investments – to more than fund the current account deficit,” Nomura said in a research note. According to official data, net foreign direct investment stood at $7.2 billion in the reporting quarter almost double from its level in the same period last year. Net portfolio investment also recorded substantial inflow of $12.5 billion in April-June quarter, primarily in the debt segment, as compared to $2.1 billion in same period last year.