Barclays maintained its forecasts for the annual current account at $35 billion or 1 per cent of the GDP in FY23-24, but stated that it sees a downside to this number.
With India’s current account deficit (CAD) narrowing to $10.5 billion in the third quarter of 2023-24, Barclays maintained its forecasts for the annual current account at $35 billion or 1 per cent of the GDP in FY23-24, but stated that it sees a downside to this number. “Our monthly tracker for Q4 FY23-24 (Jan-Feb) is currently running a current account surplus, as the gap between customs merchandise trade deficit and services trade surplus has narrowed in Q4. For FY24-25, we expect the current account to remain in check at $45 billion (1.1 per cent of GDP),” said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.
Meanwhile, Amnish Aggarwal, Director – Research, Prabhudas Lilladher Pvt Ltd, said, “India’s current account deficit moderated to 1.2 per cent of GDP during Apr-Dec’23 from 2.6 per cent of GDP in the corresponding period last year. Looking ahead, the current account deficit is foreseen to moderate below 1 per cent of GDP led by growing merchandise and service exports coupled with decline in import dependency.”
India’s CAD declined to $10.5 billion in the third quarter of 2023-24 as compared to $11.4 billion during the previous three months and $16.8 billion a year back, according to the data released by the Reserve Bank of India (RBI). The current account deficit narrowed despite a wider merchandise trade deficit, cushioned by a record high services trade surplus and secondary income. The Q3 print was slightly lower than expectations with Barclays estimates at $11.2 billion and Bloomberg consensus at $12 billion.
“Benign commodity prices are keeping the goods trade deficit in check so far in y/y terms, and a robust services trade surplus and resilient remittances are further buffering the current account. That said, the hardening in crude oil and gold prices in the past month bears watching, as India is a net importer for both. Given India’s impending bond index inclusion in June 2024, increased capital flows are likely to result in a BOP surplus for FY24-25 as well,” said Rahul Bajoria.
For the fiscal year so far (Apr-Dec FY23-24), the current account deficit stands at $31 billion (1.2 per cent of GDP).
According to the RBI data, in the financial account, foreign direct investment recorded a net inflow of $4.2 billion as compared with a net inflow of $2.0 billion in Q3 FY2022-23. Further, foreign portfolio investment recorded a net inflow of $12.0 billion, higher than $4.6 billion during Q3 FY2022-23. “Positive FDI and FPI flows kept the BOP in surplus. We expect current account financing needs to remain manageable this fiscal year and next,” said Rahul Bajoria.
Prabhudas Lilladher’s analysis also stated that India’s balance of payments situation is likely to remain stable. “The capital account was helped by buoyant FDI and FPI inflows. Furthermore, FDI inflows are foreseen to gather pace on the back of recovering growth prospects in investing economies combined with strong economic fundamentals domestically. Looking ahead, India’s balance of payment situation is likely to remain stable as resilient domestic tailwinds may outweigh the global headwinds,” said Amnish Aggarwal.
Source:financialexpress.com