Current Account Deficit Likely to Decline To 0.8% Of GDP This Fiscal: UBS Securities
The main reason for stable or sustainable CAD is the stable crude prices.
The current account deficit or CAD is likely to decline to 0.8% of GDP this fiscal against 2% last fiscal and expected to remain at a comfortable level of 1.3% next financial years, a foreign brokerage has said.
In a report, Swiss brokerage UBS Securities said it estimated the CAD, which is the gap between foreign exchange earned from exports and spent on imports, to narrow down to 0.80% of GDP in FY24 or at $27 billion against the earlier forecast of 1.2% before reaching 1.3% next fiscal. In FY23, the CAD was 2% of GDP or $67 billion.
UBS Securities India chief economist Tanvee Gupta-Jain attributed the massive improvement to the contained goods trade deficit due to lower commodity imports, especially oil and coal; improved net services receipts to 4.7 per cent of GDP; increased remittances of around 3.5 per cent of GDP, up from 2.5 per cent in FY23; and the macroeconomic stability.
Heading into FY25, she estimated the CAD to modestly increase to 1.3% of GDP or $49 billion and 1.8% or $78 billion in FY26.
The main reason for stable or sustainable CAD is the stable crude prices - the country imports as much as 87% of its fuel needs from import, making it the largest import bill. A $10 per barrel increase in global crude price can widen the country's CAD by around $14 billion or 0.4% of GDP, according to her.
She pegs the average crude price for next year to be $90 a barrel.
Buoyant services exports and resilient remittance inflow have all helped build a buffer against global oil price volatility and this can sustain if at all crude touches $90 a barrel.
Her optimism of healthy external balance comes from the inflows from the forthcoming government bond inclusion into the Morgan Stanley index from June, which could lead to $30 billion inflows, almost 60% of the FY25 current account balance, helping the capital account in surplus.
