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'India's CAD is expected to widen to 2.8% of GDP this fiscal'

Monday, August 20, 2018

India's current account deficit is expected to widen to 2.8% of the GDP in this financial year, says a Nomura report.

With rising oil prices, depreciating rupee and outflow of portfolio investments, there are concerns that CAD might rise in the current fiscal.

"Overall, we expect the current account deficit to widen to 2.8% of GDP in FY19 from 1.9% in FY18," the Japanese financial services major said.

It further said 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 USD 48.7 billion, or 1.9% of GDP, in 2017-18 fiscal. This was higher than USD 14.4 billion, or 0.6%, CAD in 2016-17 fiscal.

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

India's exports rose by 14.32% to USD 25.77 billion in July, while imports during the month were valued at USD 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 settled below the 70-mark for the first time in history on August 16 on strong demand for the US dollar amid ongoing Turkish crisis.

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