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9
March 2017
 |
Deficit (The Total Investment & Insurance
Solutions)
India's
current account deficit is expected to see a 50 per cent rise to $30 billion in
2017-18 from $20 billion in the current fiscal on higher oil and gold imports,
domestic rating agency ICRA said on Thursday. The Total Investment & Insurance Solutions
"ICRA
expects higher oil and gold imports to enlarge India's current account deficit
to $30 billion (1.2 per cent of GDP) in 2017-18 from $20 billion in 2016-17
(0.9 per cent of GDP), arresting the trend of moderation recorded for four
consecutive years since 2013-14," the rating agency said in a statement
here. The Total Investment & Insurance
Solutions
However,
the pressure related to the financing of a larger current account deficit would
abate with the resumption of non-resident Indian (NRI) deposits in 2017-18, the
statement said.
"We
expect a rise in the prices and import volumes of crude oil and gold to enlarge
the Indian current account deficit. While merchandise exports may rise by 5-6
per cent in 2017-18, partly led by the higher value of commodity-intensive
exports, global trends do not augur well for a significant improvement in the
services trade surplus and remittances in 2017-18," Aditi Nayar, Principal
Economist, ICRA, said. The Total Investment
& Insurance Solutions
Since
2013-14, a combination of lower crude oil and gold imports has helped curtail
India's current account deficit, absorbing the impact of declining merchandise
exports, services trade surplus or remittances in some of these years. The Total Investment & Insurance Solutions
This
cushion would not be available in 2017-18, Nayar added.
ICRA's
baseline projection factors in a rise in the average crude oil price to $55 per
barrel in 2017-18 from $48 per barrel in 2016-17, and a 7 per cent uptick in
import volumes on the back of sustained domestic demand. The Total Investment & Insurance Solutions
Accordingly,
net oil imports are expected to expand by 24 per cent to $67 billion in 2017-18
from $54 billion in 2016-17, emerging as the chief driver of the anticipated
widening of the current account deficit. The Total Investment & Insurance Solutions
"The
behavioural changes in purchase of gold after the note ban remain somewhat
unclear. At present, ICRA expects a modest rise in imports in 2017-18 relative
to 2016-17, particularly if healthy agricultural output boosts rural
demand," it said.
"Assuming
an average gold price of $1,250 per troy ounce, the value of gold imports in
the coming fiscal is likely to increase by 17 per cent to $28 billion from $24
billion in FY2017," it added. The Total
Investment & Insurance Solutions
The
outlook for exports remains subdued, given the global political landscape,
especially the upcoming elections in major European countries, Brexit
negotiations and the US trade policy. Such uncertainty may curtail the growth
of India's merchandise exports in the coming quarters, despite the rise in the
value of commodity-intensive exports.
Moreover,
the focus of the new US administration on promoting domestic industry and the
proposed changes to the H1-B visa regime could hamper the growth of India's
services exports. In addition, the recent appreciation of the rupee is likely
to weigh on the competitiveness of Indian exports in the coming quarters. The Total Investment & Insurance Solutions
"Global
trends do not augur well for a significant improvement in the services trade
surplus and remittances in FY2018, from the levels in FY2017," it said.
"Resumption
of NRI deposit inflows, along with sustained healthy FDI flows, would abate the
pressure related to the financing of a larger current account deficit in
FY2018. However, a high likelihood of tightening by the US Federal Reserve in
its upcoming meeting, and the possibility of a hawkish outlook for future rate
hikes, may limit the extent of FII inflows into emerging markets like India in
the coming months," ICRA said.The Total
Investment & Insurance Solutions
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