India’s current account deficit to double by end of FY18: Report

India’s current account deficit (CAD), which widened to a four-year high in April-June, is likely to touch USD 30-32 billion, or 1.2-1.3 per cent of GDP by March-end 2018, says a report.

CAD increased to USD 14.3 billion, or 2.4 per cent of gross domestic product (GDP), in the first quarter of the current fiscal from USD 0.4 billion in the year ago period.  In FY17, CAD was at USD 15.2 billion, or 0.7 per cent of GDP.

“With the size of the current account deficit in the first quarter nearly as high as the FY17 level of USD 15 billion, we expect the FY18 deficit to double to around USD 30-32 billion or 1.2-1.3 per cent of GDP,” rating agency Icra said in a report.

In general terms, CAD refers to the difference between inflow and outflow of foreign exchange that has a bearing on exchange rate.

The increase in CAD in the first quarter was on account of higher trade deficit, which stood at USD 41.2 billion.

The rise in the trade deficit was brought about by a larger increase in merchandise imports relative to exports.

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“The sharp surge in the current account deficit in April-June quarter relative to Q1 FY17 comes as no surprise, with the spike in gold imports prior to the introduction of GST responsible for half of this uptick,” the report said.

The lagged impact of rupee appreciation was partly responsible for a faster rise in non-oil non-gold imports relative to exports, bloating the size of the merchandise trade deficit, Icra said.

Net services receipts during the quarter rose by 15.7 per cent on a y-o-y basis mainly on the back of a rise in net earnings from travel, construction and other business services.

The net foreign direct investment at USD 7.2 billion in the reporting quarter almost doubled from the same period last year.

“The healthy 15 per cent increase in the services trade surplus, modest increase in secondary income inflows and decline in primary income outflows shielded the current account deficit from an even larger deterioration,” the report added.

In the first quarter, the country’s balance of payments stood at USD 11.40 billion from USD 6.969 billion in the year ago.

There was an accretion of USD 11.4 billion to the foreign exchange reserves in April-June period as compared to USD 7 billion in the year-ago quarter and USD 7.3 billion in the fourth quarter of fiscal 2017.