India’s current account deficit to widen to 1.3% of GDP in 2017: Nomura
New Delhi: India’s current account deficit (CAD) is likely to widen to 1.3% of its gross domestic product (GDP) in 2017 from 0.6% in 2016, largely owing to stronger domestic growth in the second half of this year, says a Nomura report.
According to the Japanese financial services major, import demand is expected to resume once disruptions due to the implementation of the goods and services tax (GST) settle down after July.
“We expect India’s CAD to widen to 1.3% of GDP in 2017 from 0.6% in 2016, as import growth should pick up in the second half of 2017 due to a stronger domestic recovery, while protectionist policies will likely hurt services exports,” Nomura said in the report.
It said export growth moderated sharply to 4.4% in June from 8.3% in May, while import growth eased to 19% from 33.1% in May. “Overall, India’s trade deficit narrowed to $13 billion in June from $13.8 billion in May, wider than expected,” it said.
The report said lower commodity prices and adverse base effects will continue to cap the year-on-year growth rates in the second half of 2017, partly offsetting the continued recovery in advanced economies.
On imports, some moderation was expected given the slowdown in production ahead of the GST, but import demand may resume once GST disruptions settle down after July, it said.
According to Reserve Bank of India data, CAD soared to $3.4 billion, or 0.6% of GDP, in the fourth quarter of 2016-17 fiscal, from $0.3 billion in 2015-16.