With growth bottoming out and a mild recovery likely in FY15, Nomura expects a slow rise in imports for India next year with the CAD estimated at 3.2% of GDP
The Reserve Bank of India released the quarterly balance of payment data that showed a sharp fall in the current account deficit (CAD) to 1.2% of GDP in third quarter (Q3) from 4.9% in Q2, mainly due to better exports and lower gold imports, but the capital account also moved into a deficit due to outflows in portfolio debt, short-term trade credit and other capital.
According to the data, Nomura said, the worst in terms of the quarterly balance of payment data should be behind us. "A seasonal pick-up in imports will likely widen the CAD again in Q4 (October-December), but with the Q3 numbers in line with our expectations, we maintain our FY14 (year ending March 2014) CAD estimate at $45.5 billion or 2.5% of GDP. Going forward, with growth bottoming out and a mild recovery likely in FY15, we expect a slow rise in imports next year with the current account deficit estimated at 3.2% of GDP in FY15," a research report from Nomura said.
India's CAD narrowed sharply to $5.1 billion or 1.2% of GDP in Q3 2013 from $21.8 billion or 4.9% of GDP in Q2 2013. The improvement in Q3 was mainly due to a sharp contraction in the merchandise trade deficit as exports accelerated (11.9% y-o-y in Q3 from -1.5% in Q2) while imports contracted (-4.8% y-o-y from +4.7%). The sharp improvement in exports is mainly led by the textiles, leather and chemical sectors, while the import slowdown reflects the clampdown on gold imports $3.9 billion in Q3 versus $16.4 billion in Q2 as well as weak domestic demand. The invisibles balance moderated to $28.1 billion in Q3 from $28.7 billion in Q2, as better financial services exports offset a flattish trend in remittances and higher investment income outflows on equity and investment fund shares, the research note says.
Nomura said, even as the CAD corrected sharply, the net capital account of India swung into a deficit of $5.4 billion in Q3 2013 compared with a surplus of $20.5 billion in Q2. It said, "Foreign direct investment (FDI) inflows – a stable component – remained strong, but portfolio outflows (largely debt), outflows on short-term trade credit (reflecting lower imports) as well as outflows on other capital led to net capital outflows. Overall, the balance of payments (BoP) recorded a deficit of $10.4 billion in Q3 compared with a marginal deficit of $346 million in Q2."
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
