Pick-up in exports and decline in gold imports are likely to keep the country’s current account deficit lower during the rest of the fiscal compared to the same period last year, India Ratings today said in a research report.
“We expect the CAD to be lower in the remaining quarters of the FY’14 than the corresponding quarters in FY’13 in view of a pick-up in exports and a significant drop in gold imports,” it said.
In the July-September quarter, CAD narrowed to $5.2 billion or 1.2 per cent of GDP against $21 billion or 5 per cent of GDP in the same period last fiscal.
Gold imports in Q2, 2013-14 dropped to $3.6 billion from $16.4 billion in April-June quarter due to hike in duties and other measures taken by the government to curb the inward shipments of the commodity, the report said.
The report believes that despite the uneven global recovery, the momentum witnessed in export growth will continue in the near term as there are signs of improvement in both the US and the core economies of euro zone.
According to a recent estimate by the International Monetary Fund, the US economy is expected to grow at 1.6 per cent in 2013, while Germany and France are expected to grow at 0.5 per cent and 0.2 per cent, respectively.
“An improvement in the demand conditions in advanced economies coupled with rupee depreciation is helping merchandise exports,” the report said.
Merchandise exports increased 11.9 per cent to $81.2 billion in Q2 FY’14 from $73.9 billion in the first quarter.
Depreciation of the rupee has improved the competitiveness of Indian exports, particularly of textiles and textile products, leather and leather products and chemicals, the report added.
It further said that though some increase in import growth in the second half of this fiscal is expected, it will be limited due to stable crude prices and lower gold imports.
However, the report said that due to the nuclear deal with Iran, tensions in West Asia are likely to ease leading to reduced volatility in crude prices.