A construction worker stands on the construction site of a housing block in Sector 105 of Noida, in Uttar Pradesh. (Photographer: Sanjit Das/Bloomberg)

India’s Current Account Deficit Likely To Widen To 2.8% Of GDP This Fiscal, Says Nomura

India’s current account deficit is expected to widen to 2.8 percent of the gross domestic product in this financial year, according to a Nomura report.

With rising oil prices, depreciating rupee and outflow of portfolio investments, there are concerns that the current account deficit might rise in the current fiscal, it said.

“Overall, we expect the current account deficit to widen to 2.8 per cent of GDP in financial year 2019 from 1.9 percent in financial year 2018,” the Japanese financial services major said. “The balance of payment funding to remain a challenge in the ongoing financial year as the basic balance of payment is negative and portfolio flows also remain negative,” it said.

Basic balance of payment is the sum of the current account and the net foreign direct investment.

Also read: FDI Up: Government Is Right, But Not When Compared To GDP

Current account deficit, the difference between the inflow and outflow of foreign exchange, jumped to $48.7 billion, or 1.9 percent of GDP, in 2017-18. That was higher than $14.4 billion, or 0.6 percent, CAD in 2016-17.

According to official figures, India’s trade deficit, or the gap between exports and imports, in July widened to $18 billion—the most in more than five years. Trade shortfall puts pressure on the current account deficit, a key vulnerability for the economy.

India’s exports rose 14.32 per cent to $25.77 billion in July, while imports during the month were valued at $43.79 billion.

According to Nomura, downside risks to exports remain due to a weaker global growth outlook though currency depreciation could provide some relief to exporters.

On the other hand, import growth is likely to remain elevated in the near term due to high oil prices, though weak rupee and a domestic slowdown will moderate imports in the coming quarters.

The rupee has been among the worst-performing currencies against the dollar so far this year and settled below the 70-mark for the first time in history on Aug. 16 on strong demand for the U.S. dollar amid ongoing Turkish crisis.

Also read: Rupee Likely To Stabilise At 68-69/$, Says Economic Affairs Secretary