India may see current account surplus after 7 years: Nomura

Expects the current account balance to swing into a surplus of 1.5% of GDP in Q1 of 2015

Thanks to a steep fall in global crude oil prices, India may report its first current account surplus in over seven years at 1.5% of GDP in the ongoing quarter, leading brokerage Nomura said today.

"After recording a current account deficit every quarter for over seven years, we expect the current account balance to swing into a surplus of 1.5% of GDP in Q1 of 2015 as compared with our current account deficit estimate of 1.6% of GDP for 2014 calendar year," Nomura India Chief Economist Sonal Varma said in a note.

Driven by a supply glut on the back of massive pumping out of shale gas by the US and supply increase by Iraq, Iran and also Russia, the oil prices have been falling drastically.

Since June, the prices of crude oil, of which India is a major importer, had fallen by close to 60% and hit a six-year low of USD 47 to a barrel last week.

Analysts at investment banks Goldman Sachs and Credit Suisse have pegged the bottom at about USD 37-39 a barrel.

At the current price levels of about USD 50 a barrel, the average price of Indian basket of oil will be USD 49 a barrel in the March and June quarters, giving a cool 60% savings on its oil bill from the comparative quarters in 2014, according to analysts.

Part of this projected swing is seasonal, Varma said, adding that the current account balance tends to normally improve in the March quarter due to a narrower trade deficit (lower gold imports and higher exports) and higher invisibles surpluses, primarily helped by software exports.

"However, we think the swing in Q1 will largely reflect the full pass-through of lower oil prices on the import bill, which we expect will more than offset lower petroleum exports and weaker remittances," Varma said.

CAD stood at 1.9% in Q1 of this fiscal (March quarter of 2014), at 1.1% in the June quarter and at 1.3% of GDP in the September quarter of 2014. For the fiscal as a whole, the consensus CAD was 1.8% of GDP.

However, Varma warned that a large balance of payments surplus, which she sees at above USD 20 billion in Q1, could put appreciation pressure on the rupee.

Nomura has forecast the rupee at 61.6 against the dollar in Q1 and at 62 by Q4 of 2015. A strong rupee is not good for exports.