India's current account deficit seen at 2 per cent of GDP in FY14: Crisil

India's current account deficit is likely to narrow to a 6-year low of 2 per cent of its gross domestic product (GDP) this fiscal year (FY14), but may expand to 2.7 per cent in FY15 as imports pick up, rating agency Crisil said on Tuesday.

 

"We expect CAD to print 2 per cent of GDP in 2013-14, the lowest since 2007-08... however, it will rise to 2.7 per cent of GDP in 2014-15," Crisil's research wing said in a report.

 

The current account deficit, which had touched an all-time high of 4.8 per cent in FY13 - leading to a massive depreciation in the rupee - will improve to the 2 per cent level this fiscal year on a heavy contraction in imports, it said.

 

In Q3, the deficit - which indicates imports of goods, services and transfer are higher than their exports - came down sharply to an 8-year low of 0.9 per cent of GDP from a high of 6.5 per cent a year ago, primarily driven by a massive drop in bullion imports.

 

During the first three quarters of FY14, the current account deficit print stood at 2.3 per cent of GDP.

 

Finance Minister P Chidambaram last week said the current account deficit would be contained under $40 billion. During the middle of the year, widening current account deficit was one of the biggest threats to macroeconomic stability and also battered the rupee, which plunged to a life-time low of 68.85 to the dollar on August 28 last year.

 

But effective measures taken by the Reserve Bank of India (RBI) and the government saw the rupee rallying back over 12 per cent since then.

 

"The sharp contraction in imports in this fiscal has been the primary factor that has contained the trade deficit," the report said.

 

The trade gap has narrowed to $128.1 billion for the April-February period of the outgoing fiscal year, down from $179.9 billion for the same period last fiscal year.

 

"As we move ahead, exports are expected to pick up from here, but lifting of the heavy restrictions on gold imports will result in CAD getting wider in the next fiscal," it said.

 

"After double-digits contraction this year, import growth is expected to pick up. Gold imports will begin to rise once the restrictions on them are relaxed, and imports of oil, consumption and investment goods will pick up as GDP growth improves, resulting in a higher CAD in the next fiscal."