Icra sees CAD rising to 1.2% next fiscal on rising crude, gold

Mumbai: Ratings agency Icra on Thursday said higher oil and gold imports will end the four-year trend of moderation in the current account deficit (CAD) in 2017-18, and the gap will widen to USD 30 billion or 1.2 percent of the GDP.

"Higher oil and gold imports will enlarge the current account deficit to USD 30 billion (1.2 percent of GDP) in fiscal 2018 from USD 20 billion in 2016-17 (0.9 percent of GDP), arresting the trend of moderation recorded for four consecutive years since fiscal 2014," it said.

It expects both a rise in prices as well volumes in both the commodities, its principal economist Aditi Nayar said.

"Merchandise exports may rise by 5-6 percent in fiscal 2018, partly led by higher value of commodity-intensive exports, global trends do not augur well for a significant improvement in the services trade surplus and remittances in fiscal 2018," she said.

She explained that a combination of factors, including lower crude prices and a dip in gold imports had helped the country absorb the impact of a declines in exports, services trade surplus or remittances, but it will not be available in fiscal 2018.

It can be noted that high current account deficit, which came in at a record 4.8 percent, led to the rupee hitting lifetime lows in mid-2013 in wake of the 'taper tantrums'.

In the wake of the oil cartel Opec's decision to jack up crude prices by cutting production, the agency said it expects the average price of crude to go up to USD 55 per barrel next financial year from USD 48 at present.

Import volumes will rise 7 percent on the back of the domestic demand, and coupled with the expected rise in prices, the overall oil imports to rise 24 percent in fiscal 2018.

"The behavioural changes in purchase of gold after the note ban remain somewhat unclear. At present, we expect a modest rise in imports in fiscal 2018 relative to fiscal 2017, particularly if healthy agricultural output boosts rural demand," it said.

Imports of fertilisers and fertiliser raw materials are expected to rise marginally to USD 5.4 billion in fiscal 2018 from USD 5.3 billion in fiscal 2017, while the cool-off in prices and decline in volumes will lead to a USD 1 billion decline in coal imports to USD 13.6 billion next fiscal.

On the exports front, the agency said the outlook is "subdued" on the global political landscape, especially the upcoming elections in major European countries, Brexit negotiations and the US trade policy.

"Such uncertainty may curtail the growth of India's merchandise exports in the coming quarters, despite the rise in value of commodity-intensive exports," it said.