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India's current account deficit (CAD) is expected to widen to 1.5% of GDP in 2017, from 0.6% in 2016, but net capital flows are expected to more than fund this deficit, says a Nomura report.
The Japanese financial services major said that the wider CAD in the second quarter and still-elevated trade deficit so far in July-August suggest that the CAD is set to widen sharply this year.
Nomura expects current account deficit likely at 1.5% of GDP in 2017 but noted that funding will not be a constraint.
The CAD increased to $14.3 billion, or 2.4% of gross domestic product (GDP) in the April-June quarter of this year.
On a sequential basis, the CAD widened from $3.4 billion or 0.6% of GDP in the January-March quarter.
"We expect India's CAD to widen to 1.5% of GDP in 2017, from 0.6% in 2016, but we expect net capital inflows — higher net FDI inflows as well as portfolio investments — to more than fund the CAD," Nomura said in a research note.
According to official data, net foreign direct investment stood at $7.2 billion in the reporting quarter almost double from its level in the same period last year.
Net portfolio investment also recorded substantial inflow of $12.5 billion in April-June quarter, primarily in the debt segment, as compared to $2.1 billion in the same period last year.