India's current account deficit is likely to narrow to 0.7% of the GDP in fiscal 2016 from 1.3% in FY15 largely owing to low commodity prices, a Nomura report said yesterday. According to the Japanese financial services major, the current account deficit is likely to narrow despite sluggish export volumes and rising import volumes.
"For FY16, we expect the current account deficit to narrow to 0.7% of GDP from 1.3% in FY15 as low commodity prices offset the impact of higher core imports and sluggish exports," Nomura said in a research note. Meanwhile, falling for the 15th month in a row, exports dipped 5.66% in February to USD 20.73 billion, while, imports declined 5.03% to USD 27.28 billion last month.
The trade deficit - difference between imports and exports - USD 6.54 billion in February this year compared with USD 6.74 billion in February last year. The global brokerage firm said that it indicates recovery in the volume front as export volumes rose 7.7% year-on-year in February after falling by an average of 2.8% in the past six months. "Overall, trade data suggest that both export and import volumes have picked up, with February's contraction in both exports and imports largely price-driven," Nomura said.
Meanwhile, after a sharp rise in Jan, gold imports in Feb declined 29.49% to USD 1.39 billion, which is expected to keep a lid on the country's current account deficit (CAD).
S&P Has A Similar View
The continued low oil prices will boost spending in India and help mitigate fiscal and current account deficits, says a report by Standard & Poor's. India still leads the pack in terms of Asia Pacific GDP growth, but 2016 is shaping up as a year of reckoning on the policy front, according to the report.
"Continued low oil prices boost spending in India more than elsewhere, and will help mitigate the twin fiscal and current account deficits," S&P Ratings Service said. The sluggish global demand will prolong the pain for exporters, it said, adding the recent budget emphasised prudence over growth, and focused on the rural economy.