CAD seen at 5% in FY13: Nomura

Report says CAD tends to seasonally improve during January-March period and is particularly supported this time by the payback in gold imports after the surge in Q3

After touching a record high of 6.7% of GDP in the third quarter of FY13, current account deficit (CAD) is likely to come down to around 4.5% in the last quarter of the current fiscal, Japanese financial firm Nomura said today.

 

In a research report, Nomura estimated a CAD of 5% for this fiscal and also pegged it at the same level for the next financial year.

 

"Looking ahead, we expect the current account deficit to improve to around 4.5% of GDP in Q4 of FY13," it said, adding moderating trade deficit will also support this reduction.

 

It said CAD, the difference between inflow and outflow of foreign currency, tends to seasonally improve during January-March period and is particularly supported this time by the payback in gold imports after the surge in Q3.

 

The report, however, added that reducing trade deficit was not an indication of a trend and the deficit would again deteriorate in the first quarter of next fiscal.

 

"In our view, while domestic demand remains weak, India's current account deficit is likely to remain elevated reflecting the supply-constrained nature of the domestic economy and the global new norm of high oil prices and weak exports. We forecast the current account deficit at about 5% of GDP, both in FY13 and FY14."

 

On the impact of high CAD on rupee, the report said "vulnerability of rupee to external shocks remains intact."

 

Meanwhile, rating agency Crisil, in a report said, domestic economy would be able to attract sufficient inflows to finance the high CAD in the next fiscal.

 

"We believe that if the domestic reform momentum continues, India should be able to attract sufficient inflows to cover its CAD in the next fiscal."

 

The report, however, added that if there were any signs of a global economic drought, capital flows can dry up suddenly resulting in a temporary but a sharp depreciation of the rupee.