CAD to remain manageable at 1.2 pc of GDP in FY18: UBS

India has become less vulnerable to external risks and its current account deficit (CAD) is expected to remain manageable at 1.2 per cent of GDP this fiscal, says an UBS report.
According to the global financial services major, though India remains vulnerable in its external position, risks have reduced over the past five years.
"India's current account deficit (CAD) has narrowed from a peak of 4.8 per cent of GDP in 2012-13 to 0.7 per cent in 2016-17 due to the positive terms of trade shocks and policy initiatives, and we expect it to remain contained over the next 2 years," UBS said in a research note.

UBS expects CAD to remain manageable at 1.2 per cent of GDP in 2017-18 and 1.4 per cent in 2018-19.
The bulk of the narrowing in CAD over the past five years has been largely led by lower oil imports and drop in gold imports, the report said.
Due to the lower global crude oil prices (which more than halved in the past five years) and the government's oil sector reform, net oil imports have slowed from a peak of USD 103 billion (5.6 per cent of GDP) in 2012-13 to USD 56 billion (2.5 per cent of GDP) in 2016-17.

Gold imports (gross) have moderated from a high of USD 56 billion (3.1 per cent of GDP) in 2011-12 to USD 27 billion (1.2 per cent of GDP) in 2016-17 on policy measures, including higher import duties on gold.
UBS CAD forecast for this fiscal and financial year 2018 -19 assume global crude oil prices (Brent) to average USD 62.2/bbl and USD 66.2/bbl in 2017-18 and 2018-19, and gold imports to remain reasonable (in the USD 30-35 billion range) on positive real deposit rates available to households, it said.
It further noted that any movement in global crude oil prices, protectionist policies in developed economies and surprises in the global growth recovery impacting external demand are possible risks to the CAD forecast.