CAD likely to worsen, expected at $10 bn for FY17: Citigroup

Current account deficit is likely to worsen further in the second half of the current financial year and is expected to be around $10 billion for FY17, says a Citigroup report.

According to the global financial services major, besides the widening of trade deficit in goods, the recent trend of decline in software services, exports and private remittances has continued.

"CAD is likely to worsen further in H2 (second half) and we expect FY17 (2016-17) CAD at $10 billion, with risks skewed to the upside," Citigroup said in a research note.

CAD stood at $3.4 billion in July-September of 2016, much higher than $300 million in the previous quarter.

The report further noted that the basic balance (CAD + FDI) has also improved substantially from $5.9 billion in first quarter of this fiscal to $13.7 billion in the second quarter," positioning India well to brace for the uncertainties from the Fed and US Presidential announcements".

"The favourable basic balance has helped India weather the shocks of $6 billion portfolio debt outflows and FCNR repayment of around $25 billion without much impact on INR," the report said.

If the adverse growth impact of the demonetisation exercise is transitory then we do not expect much equity outflow and the external sector is unlikely to become a flash point, it added.

On the back of lower trade deficit, CAD narrowed by more than a percentage point to 0.6 per cent of GDP at $3.4 billion in July-September, compared to the year-ago period.

The July-September CAD is lower than $8.5 billion, or 1.7 per cent of GDP, in the same quarter of last fiscal.

It is, however, higher than $0.3 billion or 0.1 per cent recorded in the first quarter of the current fiscal.