Global financial services major HSBC today lowered India's current account deficit (CAD) forecast for this financial year to 3.4% of GDP from 4.1% earlier.
HSBC said the country's CAD is at an unsustainable level, and expected
to gradually decline in the coming years and in 2014-15, it is likely to
be at 3.2% of GDP.
"We expect the CAD to narrow to around $62 billion in this fiscal (as
against $88 billion in FY13), around 3.4% of GDP. This compares to our
previous forecast of $73 billion (4.1% of GDP)," HSBC said in a research
note.
HSBC's CAD projections factored the increase in imports during the festive season and rise in coal imports to help meet demand from power plants in the coming months.
In the next fiscal year, FY15, we expect the deficit to hold broadly steady in nominal terms and decline to 3.2% of GDP.
CAD, the difference between inflow and outflow of foreign exchange, had
declined to 3.6% in the January-March quarter after touching a record
high of 6.5% in the October-December quarter.
The Government plans to bring down CAD to 3.7% or $70 billion in the 2013-14 fiscal, from 4.8% or $88.2 billion in 2012-13.
HSBC said CAD has narrowed notably in recent months mainly driven by
government steps to curb imports, especially gold. Moreover, the
softening in domestic demand has dampened imports and helped contain the
deficit.
"Encouragingly, the trade deficit has narrowed in recent months, led by
slower domestic demand, a weaker currency and policy steps to curb
imports. These factors should help narrow the CAD this and next year,"
HSBC said.
The report further noted that it is important to keep macroeconomic
policies tight and step up the implementation of structural reform to
further reduce vulnerabilities ahead of Fed tapering and make the CAD
sustainable over the medium term.
