India's current account deficit to widen to 1.3% of GDP in 2017: Nomura

New Delhi: India's current account deficit (CAD) is likely to widen to 1.3 percent of GDP in 2017 from 0.6 percent in 2016, largely owing to stronger domestic growth in the second half of this year, says a Nomura report.

According to the Japanese financial services major, import demand is expected to resume once GST disruptions settle down after July.

"We expect India's CAD to widen to 1.3 percent of GDP in 2017 from 0.6 percent in 2016, as import growth should pick up in the second half of 2017 due to a stronger domestic recovery, while protectionist policies will likely hurt services exports," Nomura said in the report.

It said export growth moderated sharply to 4.4 percent in June from 8.3 percent in the previous month, while import growth eased to 19 percent from 33.1 percent in May.

"Overall, India's trade deficit narrowed to USD 13 billion in June from USD 13.8 billion in May, wider than expected," it said.

The report said lower commodity prices and adverse base effects will continue to cap the year-on-year growth rates in second half of 2017, partly offsetting the continued recovery in advanced economies.

On imports, some moderation was expected given the slowdown in production ahead of GST, but import demand may resume once GST disruptions settle down after July, it said.

"For the full year, we expect the current account deficit to widen to 1.3 percent of GDP from 0.6 percent in 2016, owing to stronger domestic growth in second half of 2017," Nomura said.

According to Reserve Bank data, the current account deficit soared to USD 3.4 billion, or 0.6 percent of gross domestic product (GDP), in the fourth quarter of 2016-17 fiscal, from USD 0.3 billion a year ago.