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CAD may narrow to 2.6% of GDP in FY19 on falling oil prices, says report

The report earlier stated that CAD may touch 2.8% of GDP in the current financial year

Press Trust of India  |  Mumbai 

current account deficit
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Following a decline in oil prices, the country's (CAD) is expected to touch 2.6 per cent of GDP in the current financial year against an earlier expectation of 2.8 per cent, a report said.

in the first half of FY19 has already reached 95.3 per cent of full-year budget estimates (BE).

Total receipts for the six months period is Rs 7.09 trillion (39 per cent of BE) and the total expenditure is estimated at Rs 13.04 trillion (53.4 per cent of BE).

"The recent decline in might compress the CAD by around $5-6 billion from our estimates of $78 billion. This will imply CAD settling down at 2.6 per cent of GDP (previously 2.8 per cent of GDP)," according to an SBI Research report.

The report earlier stated that CAD may touch 2.8 per cent of GDP in the current financial year on a surge in crude and moderate growth in exports.

The report noted that for the second year in succession, direct are likely to be higher than the budgeted targets by at least around Rs 200 billion.

"There will also be an additional Rs 140 billion surplus under customs duty," the report said.

In addition to this, the government is expected to add another Rs 200 billion to its kitty from evaded taxes, it said.

In terms of GST receipts and excise duty, the report said the picture is not rosy.

It said the Rs 200 billion collection under looks difficult to attain given the difficult market conditions.

"We expect a Rs 900 billion shortfall in indirect taxes. Additionally, the excise cut made by the government will also impact the earnings on the income side by Rs 105 billion," it said.

On the subsidy front, the report said the first six months have seen the total spending reaching 71 per cent of the FY19 target.

The significant moderation in observed lately may give a succour and the additional subsidy burden might be now restricted to Rs 117.2 billion or even less, it added.

Looking on the expenditure side, it is observed that the government has front-loaded its capex (54 per cent of BE during April-September 2018).

"This will possibly be reduced in the second half of FY19, and so, expenditure is the key to maintain fiscal prudence," the report said.

The government may cut its expenditure by at least Rs 700 billion to meet the budgeted of 3.3 per cent, it added.

First Published: Thu, November 22 2018. 18:20 IST