India’s current account deficit is expected to show some improvement in the January-March period at 4-4.5 per cent of GDP, but is likely to worsen again in the current quarter due to sluggish exports, high gold demand and seasonal rise in imports, Nomura has said.
After hitting a record high of 6.7 per cent of GDP in Q4 2012, in the first quarter of this year CAD is likely to narrow to 4-4.5 per cent of GDP, owing to some improvement in the trade deficit, the Japanese firm said in a research note.
CAD represents the difference between inflows and outflows of foreign currency.
It is likely to worsen in the April-June quarter as the country’s trade deficit has worsened again to $17.8 billion in April and Nomura said it expects CAD to deteriorate further to $20.8 billion in May.
“The current account deficit remains elevated and we expect it to worsen to 5.5-6 per cent of GDP in Q2 2013, after the expected improvement in Q1,” Nomura said, adding: “this suggests that financing the deficit still remains a concern.”
It said the sharp deterioration in CAD in the April-June quarter is partly due to seasonal factors and also reflects sluggish exports and the front-loading of gold demand in response to falling prices.
On rising gold demand the Japanese brokerage firm said the recent fall in gold prices, if sustained, a moderation in CPI inflation and the RBI’s restriction on gold imports should taper investment demand for gold, but added that the immediate reaction to lower gold prices has been “higher demand”.
Gold prices had fallen to 21-month low at Rs 26,440 per 10 gm in the domestic markets on April 16 due to a continued sell-off in the global markets.