Current account deficit may widen to 2.8% of GDP: Nomura

India’s current account deficit is expected to widen to 2.8 per cent of GDP in this financial year. With rising oil prices, depreciating rupee and outflow of portfolio investments, there are concerns that CAD might rise.

“Overall, we expect the current account deficit to widen to 2.8 per cent of GDP in FY19 from 1.9 per cent in FY18,” Japanese financial services major Nomura says in a report.

It says that “balance of payment (BOP) funding to remain a challenge in FY19 as the basic BOP (current account + net FDI) is negative and portfolio flows also remain negative’’.

CAD, which is the difference between the inflow and outflow of foreign exchange, jumped to $48.7 billion, or 1.9 per cent of GDP, in 2017-18 fiscal. This was higher than $14.4 billion, or 0.6 per cent, in 2016-17 fiscal.

According to official figures India’s trade deficit, or the gap between exports and imports, in July had widened to $18 billion, the most in more than five years. Trade shortfall puts pressure on the current account deficit, a key vulnerability for the economy.

India’s exports rose 14.32 per cent to $25.77 billion in July, while imports stood at $43.79 billion. According to Nomura, the downside risks to exports remain due to a weaker global growth outlook though currency depreciation could provide some relief to exporters.

On the other hand, import growth, is likely to remain elevated in the near-term due to high oil prices, though weak rupee and domestic slowdown will moderate imports in coming quarters.

The rupee has been among the worst-performing currencies against the dollar so far this year and had settled below the 70-mark for the first time in history on August 16 due to strong demand for the US dollar amid the ongoing Turkish crisis.

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