India's current account deficit to be 1.5% of GDP this fiscal

New Delhi: India's current account deficit (CAD) for this financial year is expected to be around USD 40 billion, or 1.5 per cent of GDP, says a Nomura report.

India's current account deficit (CAD) rose sharply to USD 14.3 billion -- 2.4 per cent of GDP -- at the end of first quarter of 2017-18.

In general terms, CAD refers to the difference between inflow and outflow of foreign exchange that has a bearing on the exchange rate.

According to the Japanese financial services major, July-September CAD is expected at about 1.6 per cent of GDP and accordingly, CAD for the first half of this fiscal (April- September) is likely to be around 2 per cent of GDP.

"For the full year, we expect the current account deficit to remain elevated at USD 40 billion, or 1.5 per cent of GDP, up from 0.7 per cent of GDP in FY17," Nomura said in a research note.

According to Nomura, the widening of the trade balance in April-September was due to transitory factors, which is expected to reverse in the second half (October-March).

The global brokerage firm laid down four reasons for "narrow" CAD numbers in the second half of this fiscal. First, a reversal of import substitution that was triggered by domestic supply disruptions and second, gains in price competitiveness.

Other factors include normalisation of gold imports and fading GST-related disruptions that are pushing exports to catch up with the global cycle.

"Overall, our analysis shows that the worsening of India's current account deficit is largely due to transitory factors and thus, external imbalances should correct in the second half of 2017-18 as these effects fade (the worst is behind us)," the report said.