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CAD to narrow to 6-yr low of 2% in FY14: Crisil

Last Updated: Tuesday, March 11, 2014 - 21:49

Mumbai: India's current account deficit (CAD) was likely to narrow to a 6-year low of 2 percent of GDP this fiscal, but may expand to 2.7 percent in FY15 as the imports pick up, ratings agency Crisil today said.

"We expect CAD to print 2 percent of GDP in 2013-14, the lowest since 2007-08... However, it will rise to 2.7 percent of GDP in 2014-15," Crisil's research wing said in a report.

CAD, which had touched an all-time high of 4.8 percent in FY13 - leading to a massive depreciation in the rupee - will improve to the 2 percent level this fiscal on a heavy contraction in imports, it said.

In Q3, CAD - which indicates imports of goods, services and transfer are higher than their exports - came down sharply to an 8-year low of 0.9 percent of GDP from a high of 6.5 percent a year ago, primarily driven by a massive drop in bullion imports.

During the first three quarters of FY14, the CAD print stood at 2.3 percent of GDP.

The Finance Minister last week said CAD would be contained under USD 40 billion. During the middle of the year, widening CAD was one of the biggest threats to macroeconomic stability aand also battered the rupee, which plunged to a life-time low of 68.85 to the dollar on August 28 last year.

But effective measures taken by RBI and government saw the rupee rallying back over 12 percent since then.

"The sharp contraction in imports in this fiscal has been the primary factor that has contained the trade deficit," the report said.

The trade gap has narrowed to USD 128.1 billion for the April-February period of the outgoing fiscal, down from USD 179.9 billion for the same period last fiscal.

"As we move ahead, exports are expected to pick up from here, but lifting of the heavy restrictions on gold imports will result in CAD getting wider in the next fiscal," it said.

"After double-digits contraction this year, import growth is expected to pick up. Gold imports will begin to rise once the restrictions on them are relaxed, and imports of oil, consumption and investment goods will pick up as GDP growth improves, resulting in a higher CAD in the next fiscal," Crisil said.

First Published: Tuesday, March 11, 2014 - 21:49
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