FY14 trade deficit to be $144.9 billion; CAD at $36.8 billion: Citigroup

The improvement in the CAD is largely due to the narrowing of the trade deficit

India's trade deficit for the current financial year is likely to be contained at $144.9 billion, helping to narrow the current account deficit to $36.8 billion, a Citigroup report says.

 

The improvement in the current account deficit (CAD) is largely due to the narrowing of the trade deficit and the success of the FCNR deposit scheme, according to the financial services major.

 

The Reserve Bank of India had in September offered special concessional windows for swapping foreign currency non-resident (FCNR) deposits and for overseas borrowings by banks. The two swap windows mobilised $34 billion, the RBI said on December 2.

 

"Taking into account the sharper-than-expected fall in 'non-oil/non-gold' imports, we estimate the trade deficit narrowing to $144.9 billion vs $194 billion last year, Citigroup said. It added that in FY14 "we expect the CAD to come in at $36.8 billion or 2% of GDP."

 

In the next financial year (2014-15), the trade deficit is expected to rise marginally to $156 billion and the CAD may reach $46.7 billion, or 2.3% of GDP.

 

According to a finance ministry official, the CAD is expected at $45 billion in the current financial year. The Reserve Bank last month projected the CAD at less than $50 billion, or 2.5% of GDP. The gap in 2012-13 was $88.2 billion, or 4.8% of GDP.

 

Citigroup said the narrowing of the trade deficit in FY14 cannot be attributed only to restrictions on gold imports and that it is more "broad-based."

 

Exports have risen, led by petro products, textiles and transport equipment, while imports, apart from gold, have also declined due to lower inward shipments of capital goods, the report said.

 

Gold and silver imports declined 77% to $1.72 billion in January, mainly due to curbs imposed by the government on inbound shipments of the precious metal, which are aimed at narrowing the current account deficit.

 

India's exports grew 3.79% to $26.7 billion in January and the trade deficit narrowed sharply to $9.92billion, the government said yesterday.

 

Citigroup said the Indian currency is likely to remain in the range of Rs 60-63 to the dollar. The rupee closed at 62.22 against the dollar yesterday.

 

Even after an improved CAD, the rupee may remain in the Rs 60-63 range due to emerging market risk aversion and a dip in forward-adjusted reserves, Citigroup said.