India’s current account deficit is expected to widen to 1.5 per cent of GDP in 2017, from 0.6 per cent in 2016, but net capital flows are expected to more than fund this deficit, says a Nomura report.
The Japanese financial services major said that the wider current account deficit in the second quarter and still-elevated trade deficit so far in July-August suggest that the current account deficit is set to widen sharply this year.
Nomura expects current account deficit to be at 1.5 per cent of GDP in 2017 but noted that funding will not be a constraint.
Current account deficit increased to $14.3 billion or 2.4 per cent of GDP in the April-June quarter of this year. On a sequential basis, CAD widened from $3.4 billion or 0.6 per cent of GDP in the January-March quarter.
“We expect India’s current account deficit to widen to 1.5 per cent of GDP in 2017, from 0.6 per cent in 2016, but we expect net capital inflows — higher net FDI inflows as well as portfolio investments — to more than fund the current account deficit,” Nomura said in a research note.
According to official data, net foreign direct investment stood at $7.2 billion in the reporting quarter almost double that of in the same period last year.
Net portfolio investment also recorded a substantial inflow of $12.5 billion in the April-June quarter, primarily in the debt segment, compared with $2.1 billion in same period last year.