CAD SEEN WIDEN­ING TO $15.2B IN Q1

Financial Chronicle - - FRONT PAGE - PARNALI KSHIRSAGAR

Sig­nif­i­cant slow­down in ex­ports and sharp ap­pre­ci­a­tion in the ru­pee will likely widen In­dia’s cur­rent ac­count deficit for the first quar­ter of the FY end­ing March 2018.

SIG­NIF­I­CANT slow­down in ex­ports on back of slug­gish global growth and sharp ap­pre­ci­a­tion in the ru­pee will likely widen In­dia’s cur­rent ac­count deficit (CAD) for the first quar­ter of the fi­nan­cial year end­ing March 2018, ex­perts said.

Also, mod­er­a­tion of re­mit­tances and trans­fers in midst of tighter labour move­ment and stepped up reg­u­la­tions is ex­pected to widen the April-July cur­rent ac­count deficit, econ­o­mists said.

Economi sts see Ind ia’s CAD in the first quar­ter of FY18 to widen 0.6 per cent of the gross do­mes­tic prod­uct (GDP) to $15.4 bil­lion com­pared with $3.4 bil­lion dur­ing the fourth quar­ter of FY17. The CAD for FY17 was $15.2 bil­lion, 0.7 per cent of GDP.

“The cur­rent ac­count deficit is set to widen in FY18, par­tic­u­larly in the first quar­ter of FY18 due to un­der whelm­ing ex­port growth, jump in fuel, gold and elec­tron­ics im­ports,” said Rad­hika Rao, In­dia econ­o­mist at DBS Group Re­search.

Dur­ing April-July, the trade deficit widened to $52 bil­lion, nearly dou­ble com­pared with $27 bil­lion in the same pe­riod a year ago.

Ex­ports may have fallen sig­nif­i­cantly in months be­fore the im­ple­men­ta­tion of the goods and ser­vices tax (GST) due to un­cer­tainty over the tax regime and higher work­ing cap­i­tal re­quire­ments un­der GST that likely hurt small manufacturers, said Soumya Kanti Ghosh, group chief eco­nomic ad­viser at SBI.

Adding to this, some econ­o­mists ex­pect gold im­ports may have re­mained strong in Au­gust at ap­prox­i­mately 61 ton nes and worth $2.5 bil­lion. Gold im­ports in Au­gust have tripled over a year ago as traders im­ported heav­ily af­ter the govern­ment re­moved cus­toms duty on the pre­cious metal im­ported from South Korea.

But im­prove­ments in the ser­vices sur­plus will likely off­set some of the widen­ing in goods trade deficit in the first quar­ter, said A Kukreja, In­dia Econ omist at Mor­gan Stan­ley.

“With higher oil prices and un­favourable base ef­fects, we ex­pect a mod­er­a­tion in both ex­port and im­port growth on-year ba­sis,” said Kukreja. Econ­o­mists ex­pect cur­rent ac­count deficit to re­main be­tween 1 per cent and 1.2 per cent of GDP for the en­tire FY18.

The cur­rent ac­count deficit for FY17 was $15.2 bil­lion, 0.7 per cent of GDP

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