DBS Bank reduces India's CAD forecast to 2.2% of GDP for FY2015

CAD funding needs will be cushioned by the strong capital flows

The DBS Bank has reduced its forecast for India's current account deficit (CAD) to 2.2% of GDP in FY2015 revising from 2.6% earlier (FY14's 1.7%).

A revival in investment spending and capex expansion plans is expected to buoy demand for imported inputs. At the time of writing, the court decision on mining operations is still pending. If the final ruling bans activity in all allocated mines, higher coal imports will be an additional strain on the trade account.

In the meantime, there has been no indication of lowering the gold import duties as yet, which suggests that the anticipated jump (apart from seasonal demand) in gold imports might not pan out. DBS Bank expects the balance of payments position to be comfortable at circa USD 40bn, up from USD 15bn last year.

As per the DBS Bank, there is likely to be some relief on the twin deficits i.e. current account and fiscal imbalances this year. Our estimate is for the current account deficit (CAD) to widen marginally, but funding needs will be cushioned by the strong capital flows.

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