India CAD seen at 0.5-0.6 per cent of GDP in FY16

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New Delhi | Updated: March 12, 2015 11:00:39 AM

India's current account deficit is likely to halve to 0.6 pct of GDP during next fiscal from a little over one per cent in this financial year, according to analysts.

India CAD, Indian economy, current account deficitIndia’s current account deficit is likely to halve to 0.6 pct of GDP during next fiscal from a little over one per cent in this financial year, according to analysts. (Thinkstock)

The current account deficit is likely to halve to 0.6 per cent of GDP during next fiscal from a little over one per cent in this financial year on account of record low prices of oil, according to analysts.

“Looking further ahead, despite higher non-oil imports, lower remittances from the Middle East and sluggish outlook on exports, we believe the power of lower oil imports will be sufficient to halve the current account deficit to 0.6 per cent of GDP in FY16 from 1.1 per cent in the previous year,” HSBC said in a note today.

According to Singaporean brokerage DBS Bank, direction of oil prices will be an important determinant for the scale of improvement in next year’s current account deficit.

“The gap could narrow to 0.5-1 per cent of GDP in FY16, assuming prices remain around USD 50-60 per barrel,” DBS said.

Global agency Moody’s said while a recovery in growth and the recent liberalisation of gold imports could lead to a further rise in imports over coming quarters, subdued commodity prices are likely to keep the deficit from widening sharply.

“We expect the current account to be amply funded by foreign capital inflows, leading to a balance of payments surplus and build-up in reserves over the year,” the rating agency said.

Standard Chartered Bank said in a note that it expects the current account deficit to widen from FY16 onwards, albeit at a gradual pace.

In the quarter ended December 2014, the CAD doubled to USD 8.2 billion, or 1.6 per cent of GDP, from USD 4.2 billion, or 0.9 per cent of GDP, a year ago.

On a sequential basis, however, the CAD, which is the gap between foreign exchange earned and spent, has narrowed from USD 10.1 billion, or 2 per cent of GDP, in the September quarter, the RBI said.

HSBC believes that in the January-March quarter, the merchandise trade deficit is expected to narrow substantially as lower oil prices drag down the import bill further, and gold imports normalise.

“As a result, we expect the current account to go into surplus after 32 consecutive quarters in deficit,” it said.

Standard Chartered Bank said, “We expect a current account surplus in fourth quarter for the first time since March 2007 as lower oil prices boost the positive seasonal effect during the quarter.”

According to DBS Bank, the current account balance is likely to register a small deficit or near balance in the March 2015 quarter, leaving the FY15 current account gap at a comfortable 1.3 per cent of GDP from 1.7 per cent last year.

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