Falling oil, gold to lower CAD to 3.2% this fiscal: Analysts
Mumbai: The steep fall in gold and oil prices provides a breather to the nation's external sector in the form of a massive improvement in current account deficit which is slated to ease to 3.2 percent this fiscal, say analysts.
"Few economies in the world would be as positively impacted by the fall in oil and gold prices as India," Deutsche Bank said in a note Wednesday.
It added that development holds "profound implications" on balance of payments, inflation, monetary policy and interest rates, forex rates, fiscal position, and consumption and savings, etc.
Current account deficit (CAD) hit a historic high of 6.7 percent in the December quarter of the past fiscal; the full fiscal may end with a CAD of around 6 percent.
Barclays said the country will save up to USD 20 billion from the fall in both the gold and crude oil prices and hence lower CAD to about USD 66 billion or 3.2 percent of the GDP this fiscal.
It is calculated that a one-dollar drop in a barrel of crude can save a Rs 8,000 crore in oil import bill annually.
"With every one-dollar impacting gross retail fuel under-recoveries by Rs 3,600-3,800 crore annually and the CAD by 4 bps (basis points) of GDP, we estimate that the country's macro aggregate run-rate has improved markedly since mid-February as Brent slid 20 percent to below USD 100 a barrel," Barclays said.
It further estimates that if gold prices remain flat at USD 1400 per ounce, and the Brent crude remains at USD 100 a barrel, the net import bill for these commodities could fall by nearly USD 7 billion and over USD 13 billion, respectively.
RBS said up to 1.9 percent of GDP will get saved if the prices of these commodities remain where they are today. "The impact on the CAD should be significant, cumulatively amounting to 1.9 percent of GDP," it said in a note.
"Reduction in the current account deficit should provide the RBI with greater headroom for policy easing," Barclays said, adding it will be revising its policy rate estimates depending on the commodity prices.
However, high consumer price inflation at 10.4 percent in March and instances of upward revisions in the headline inflation will inhibit the RBI from cutting rates on May 3 even though the headline inflation for March hit a three-year low of 5.96 percent, it said.