CAD to widen to 1.6% of GDP in 2016-17 on demand push: Nomura

New Delhi: India's current account deficit is likely to widen to 1.6 percent of GDP this fiscal, driven by pick-up in domestic demand on the back of better a monsoon and upcoming pay hikes, says a Nomura report.

According to the global financial services major, the country's domestic demand will pick up on the back of a better monsoon, 7th Pay Commission awards and the ongoing public capital expenditure plans.

"In our base case, we expect the current account deficit to widen to 1.6 percent of GDP in FY17 from an estimated 0.9 percent in FY16, owing to our view that domestic demand will pick up on the back of better monsoon, coming pay hikes and ongoing public capex," Nomura said in a research note.

CAD narrowed to 1.4 percent in April-December, from 1.7 percent in the corresponding period of 2014-15, on the back of contraction in trade deficit.

According to official data, exports declined by 6.74 percent to USD 20.5 billion, registering the 17th straight month of fall in April, due to a sharp fall in shipments of petroleum and engineering products amid tepid global demand.

Imports too dropped by 23.1 percent to USD 25.41 billion in the month under review as against USD 33 billion in April 2015. Trade deficit in April more than halved to USD 4.84 billion compared with USD 11 billion in the same month last year.

Commenting on this data, the report said overall, the trade data paint a gloomy picture on both domestic and global demand.

"The broad-based weakness in non-oil imports is a worrying sign. After sluggish industrial output growth in March, the April import data suggest no turnaround in domestic demand yet," the Nomura report said.