CAD SEEN WIDENING TO $15.2B IN Q1
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