India's CAD likely to widen in June quarter

CAD, which is difference between inflow and outflow of foreign exchange, shrank to 1.3% of GDP ($27.5 bn) in 2014-15

India's current account deficit (CAD) is likely to widen in the June quarter to 1.8-2.0% of GDP while for the current financial year, it is likely to remain under control, says a DBS report.

According to the global financial services major, though the widening of CAD is likely to raise concerns "briefly" over wider trade imbalances, the full-year CAD is likely to remain within control.

"India's current account deficit is likely to widen anew in the June 2015 quarter, but will not emerge as a flash-point for the full-year FY15/16 (April 2015 to March 2016)," DBS said in a research note.

As per official figures, the CAD, which is the difference between the inflow and outflow of foreign exchange shrank to 1.3% of GDP ($27.5 billion) in 2014-15 from 1.7% ($32.4 billion) in 2013-14.

The Reserve Bank of India and the government have been maintaining that the CAD level is comfortable.



The DBS report said that on quarter-on-quarter basis imports rose 2.8% in the June quarter while exports fell 5%. Moreover, service sector trade surpluses also fell for three successive months to May 2015.

DBS expects the April-June current account deficit to widen to 1.8-2.0% of GDP, from 0.3% in the quarter before.

The report noted that the full-year CAD is likely to remain within control, at less than 2% of GDP.

"More importantly, financing the current account deficit will not be a hurdle given sustained portfolio inflows and supportive FDI flows," DBS added.