DBS sees CAD at 1.3% in March quarter

In its report it said that low oil prices will be an important driver for the scale of improvement in next year's deficit

The current account deficit is likely to narrow to 1.3% in the March quarter due to lower crude import bill and moderation in gold purchases.

"The oil import bill began to narrow from December onwards, just as gold purchases also moderated after the seasonal jump. This will likely extend into the March quarter and narrow the current account deficit to -1.3% of GDP as against the previous estimate of -1.6%," DBS Bank said in a report.

In the first half of this fiscal, the current account deficit widened to 1.9% of GDP, from 0.6% in the prior six months.

The report said low oil prices will be an important driver for the scale of improvement in next year's deficit.

"We look for -1% of GDP in 2015-16 assuming a rebound in prices, but the deficit could halve in scale if oil prices stay close to USD 60 per barrel," the report added.

The report also said the new projected fiscal deficit target of 3.9% for 2015-16 should improve the credibility of the fiscal maths.

"Several changes in the direct and indirect tax are on the cards, including a gradual reduction in corporate tax rates from 2016-17 onwards. Increase in service tax rates and custom duties, alongside plans to introduce GST next year should buttress collections," it said.

The report noted the government has affirmed its commitment to fiscal consolidation by setting the 2016-17 target at -3.5% of GDP and -3% by 2017-18.

Renewed focus on higher public spending, especially infrastructure projects, is positive for growth, it said.

"The country's twin deficits, current account and fiscal imbalances, are heading for better times," the report added.