With rising oil prices, rupee falling and FPI, there are concerns that India’s current account deficit might rise in 2018-19. Photo: iStockphoto
New Delhi: India’s current account deficit (CAD) is expected to widen to 2.8% of gross domestic product (GDP) in this financial year, says a Nomura report. With rising oil prices, a depreciating rupee and outflow of foreign portfolio investments, there are concerns that the current account deficit might rise in the current fiscal year.
“Overall, we expect the current account deficit to widen to 2.8 per cent of GDP in 2018-19 from 1.9 per cent in 2017-18,” the Japanese financial services major said. It further expects “balance of payment (BOP) funding to remain a challenge in 2018-19 as the basic BOP (current account plus net foreign direct investment) is negative and portfolio flows also remain negative”.
The current account deficit, which is the difference between the inflow and outflow of foreign exchange, jumped to $48.7 billion, or 1.9% of GDP, in 2017-18. This was higher than $14.4 billion, or 0.6%, in 2016-17.
According to official figures India’s trade deficit, or the gap between exports and imports, in July widened to $18 billion, the most in more than five years. A trade shortfall puts pressure on the current account deficit and is a key vulnerability for the economy.
India’s exports rose by 14.32% to $25.77 billion in July, while imports during the month were valued 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 a weak rupee and a domestic slowdown could 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 16 August on strong demand for the dollar amid the ongoing Turkish crisis.