Current account deficit may fall to 3.1%, says CRISIL

The country’s current account deficit (CAD), which had touched a record high of 4.2 percent last fiscal, is likely to moderate to 3.1 percent of GDP in the current financial year on the back of import moderation and the strengthening rupee, said rating agency Crisil today.

“Going forward, we expect further moderation in imports due to slower growth and some appreciation in the rupee. This is likely to bring the CAD down to around 3.1 percent of GDP for 2012-13 with the rupee expected around 53 per dollar by the end of March,” the report said.

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The CAD, which is the difference between the forex earned and expended, has come down to 3.9 percent in the first quarter of this fiscal from a high 4.5 percent in the Q4 of last fiscal on the back of slowing imports.

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In absolute terms, the CAD came down to $16.6 billion in first quarter of this fiscal against $ 21.8 billion in Q4 of FY'12. “Among the major components of the current account, trade deficit fell by 5.6 percent and surplus on invisibles also fell by 5.6 percent y-o-y. The invisibles surplus was able to finance only 61 percent of the trade deficit,” the report said.

As per the report, imports saw a reduction of 3.6 percent to $119.2 billion in the first quarter as against $123.7 billion a year ago.

Driven by a massive spike in oil and gold imports, which pushed up the trade deficit to historic high, the current account deficit hit all-time high of 4.2 percent of GDP in FY12 at $78.2 billion. This was the highest ever CAD both in percentage and in absolute terms. In FY11, the CAD was only $ 46 billion or 2.7 percent of GDP.

Referring to balance of payment (BoP) turning positive, the report said, “Lower current account deficit and stable capital inflows in Q1 of FY13 as against Q4 of FY12 eased the pressure on BoP and pulled it out of the negative zone.”

It can be noted that the pressure on CAD had pushed up the BoP too in the third quarter of last fiscal, due to a large increase in imports. However, a report from Kotak Research says despite the BoP turning positive in Q1, the overall BoP deficit in the current fiscal is likely to be $ 8.4 billion, which will see a higher CAD at around 4.1 percent in FY13.

“The BoP out-turn is marginally positive at $0.5 billion for 1Q. However, we do not think this is likely to sustain and expect the fiscal-end BoP deficit at $8.4 billion,” the Kotak report said. “We now estimate the CAD to worsen to 4.1 percent of GDP this fiscal under our base-case scenario of oil at $ 110 a barrel compared to our earlier estimate of 3.6 percent.

PTI