Oil tanker discharges crude oil at the Port (Photographer: Eddie Seal/Bloomberg)

India’s Current Account Deficit May Widen To 3% In September Quarter, Says ICRA

India's current account deficit is likely to rise to three percent of GDP in the July-September quarter of current fiscal, from 2.4 percent in the preceding quarter, driven mainly by high crude oil prices, credit rating agency ICRA said on Monday.

ICRA expects the current account deficit to widen sharply to $19-21 billion or three percent of GDP in July-September 2019, from the modest $7 billion in Q2 FY18, led by higher crude oil prices and gold imports, the rating agency said in a statement.

CAD would widen to $68-73 billion (2.6 percent of GDP) in FY19 from $48.7 billion in FY18 (1.9 percent of GDP), if the price of the Indian basket of crude oil averages at $72/barrel in FY19.
Aditi Nayar, ICRA’s Principal Economist

The CAD, which is the difference between the inflow and outflow of foreign currency, stood at 1.9 percent of GDP in 2017-18 and 0.6 percent of GDP in 2016-17.

The agency however noted that the subsequent correction in crude oil prices has eased concerns regarding the size of the current account deficit in October-March period of current fiscal.

Brent crude futures which was trading around $80 to a barrel in September, has fallen to around $62 a barrel.

"The recent correction in crude oil prices has doused concerns regarding the size of India's current account deficit in October-March FY19. Moreover, a seasonal uptrend in exports should help moderate the current account deficit in H2FY19 relative to H1FY19," Nayar added.

Following the year-on-year surge in crude oil prices, India's net import bill related to petroleum, crude and crude related products increased by a sharp 60 percent to $23 billion in September quarter this fiscal, from $14 billion in the same period last fiscal.

Additionally, gold imports rose by 61 percent to $9 billion in the September quarter, from $6 billion in the year-ago period.

These two item groups account for around 80 percent of the rise in India's merchandise trade deficit in the second quarter of the fiscal, relative to the year-ago quarter, ICRA said.

Also read: Higher Interest Rates To Tackle India’s Current Account Deficit? Two Sides Of The Debate.