Current account deficit seen widening for June quarter

Written by Reuters | Mumbai | Updated: Sep 30 2013, 15:17pm hrs
Current account deficit cadThe CAD gap typically widens in the June quarter from the previous quarter. Reuters
India's current account deficit (CAD), which hit a record high in the last fiscal year, is expected to rise in the June quarter from the previous three-month period before easing due to sharp fall in gold imports and improving exports.

Five economists predicted the June quarter current account deficit would rise to $23-25 billion, or 4.8-5.4 percent of gross domestic production (GDP), from $18.1 billion, or 3.6 percent, in the March quarter.

The data will be released on Monday.

The CAD gap typically widens in the June quarter from the previous quarter due to seasonal factors including lower exports. In the June quarter last year, the current account deficit was $17.1 billion.

"CAD is likely to peak in Q1 and is expected to fall in subsequent quarters because there has been a clamp down on gold imports," said A. Prasanna, economist at ICICI Securities Primary Dealership in Mumbai.

India's high current account gap has made the country especially vulnerable to a surge in capital flows out of emerging markets in recent months, sending the rupee down as much as 20 percent this year to a record low on Aug 28, although it has since recovered some ground.

In a bid to narrow the gap, which has been fuelled by heavy oil and gold imports and sluggish exports, the government increased the gold import duty three times this year to 10 percent.

India's trade deficit narrowed to $10.9 billion in August, helped by a double-digit rise in merchandise exports, provisional government data showed.

Some economists said they expect the current account gap to improve to around $10-12 billion in the September quarter.

"We expect some improvement in exports and continued sluggishness in non-oil and non-gold imports, given the weak demand in the economy," Prasanna said.

Four economists said they expect India to end the fiscal year that closes in March with a current account deficit of around $70 billion for the full year ending March 2014.

Barclays is more optimistic, predicting it will fall below $60 billion, or 3.3 percent of GDP, due in part to improving software exports.