India’s current account deficit (CAD) remains in check and is expected to be lesser than USD 25 billion this fiscal, says a report.
According to financial services major Barclays, though the underlying growth in the country is improving, it is unlikely to put significant pressure on the current account.
“Overall, we believe India’s external sector appears well placed and expect it to remain so in the coming quarters,” Barclays said in the report.
It further noted that India is a large beneficiary of lower crude oil prices, and FDI inflows remain on a relatively strong footing and help to offset the portfolio outflows seen in recent months.
India’s CAD narrowed to 1.6 per cent of GDP at USD 8.2 billion in the second quarter ended September. It is however higher than 1.2 per cent for the April-June quarter of this fiscal. The deficit for the first half of this fiscal stood at USD 14.3 billion.
Commenting on these numbers, the brokerage said that the performance of India’s external sector remains robust and that financing the current account deficit has not been a challenge.
“Given the recent sharp decline in oil prices, we see rising risks that the current account deficit will be smaller than our projection of USD 25 billion,” the report said adding “we believe underlying growth in India is improving, but it is unlikely to put significant pressures on the current account”.
Recently, Finance Minister Arun Jaitley had said CAD is expected to be 1.2 per cent of the GDP for the entire 2015-16 fiscal.
“With a moderately good GDP growth figure, the fiscal deficit under control, the current account deficit which we planned to about 1.2 per cent, we intend to achieve that,” he had said.
According to experts, a CAD up to 2.5 per cent of GDP can be financed with the current level of foreign fund inflows and remittances. In FY14, it had risen to a historic high of 4.8 per cent of GDP.