Officials believe, India’s current account deficit will widen this fiscal

High oil prices and weakening rupee put pressure on import bill

New Delhi.

Experts believe that CAD is expected to cross 2 percent of GDP in the quarter ended June against 1.9 percent in 2017-18.

High oil prices clubbed with a weakening rupee have put pressure on the country’s import bill, which is expected to widen the current account deficit (CAD) in FY19.

"CAD will not be as good as last year… but it won’t be as bad as it is being predicted because oil prices are not expected to rise," a top Finance Ministry official said on August 21.

He added that CAD will be in the +/- 10 basis points range of internal government estimations.

CAD, a key measure of a country’s macroeconomic stability, is an excess of the sum of exports of goods and services, as well as income receivable over imports and income payable. While it was at 6.7 percent of GDP in 2012-13, the government now has managed to maintain it below 2 percent of GDP annually.

Experts believe that CAD is expected to cross 2 percent of GDP in the quarter ended June against 1.9 percent in the year ago period.

Further, the merchandise trade deficit hit a 62 month high of $18 billion in July, due to higher gold purchases and elevated oil import bill, which would have an impact on CAD.

"The current account deficit is likely to widen to USD 16-17 billion or around 2.5 percent of GDP in Q1 FY2019, from USD 14 billion in Q1 FY2018, with higher commodity prices offsetting the benefit of the contraction in gold imports," ICRA had said in mid-August.

Japanese financial services major Nomura has estimated that CAD could widen to 2.8 percent of GDP in 2018-19.

The rupee plummeted in mid-August to a record low of Rs 70.4/$ on the back of a stronger greenback and falling Turkish lira.

The rupee has fallen more than nine percent year-to-date and by two percent in August itself. It closed at 69.81/$ on August 21.

Meanwhile, investors have been pulling out of emerging markets, betting on a stronger US economy. Asian currencies fell especially after the lira tumbled about 28 percent in August and 40 percent year to date after the US decided to double import tariffs on the country’s steel and aluminum imports.

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