03 Dec 2018 14:57 IST

CAD to widen 3% in Sept qtr on higher crude prices

ICRA expects the current account deficit to widen sharply to $19-21 billion

India’s current account deficit is likely to rise to 3 per cent of GDP in the July-September quarter of current fiscal, from 2.4 per cent in the preceding quarter, driven mainly by high crude oil prices, ICRA said Monday.

ICRA expects the current account deficit to widen sharply to $19-21 billion or 3 per cent of GDP in Q2 (July-September) FY2019, from the modest $7 billion in Q2 FY2018, led by higher crude oil prices and gold imports, the credit rating agency said in a statement.

“CAD would widen to $68-73 billion (2.6 per cent of GDP) in FY 2019 from $48.7 billion in FY2018 (1.9 per cent of GDP), if the price of the Indian basket of crude oil averages at $72/barrel in FY2019,” ICRA Principal Economist Aditi Nayar said.

The CAD, which is the difference between the inflow and outflow of foreign currency, stood at 1.9 per cent of GDP in 2017-18 fiscal and 0.6 per cent 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 dollar to a barrel in September, has fallen to around 62 dollar a barrel.

“The recent correction in crude oil prices has doused concerns regarding the size of India’s current account deficit in H2 (October-March) FY2019. Moreover, a seasonal uptrend in exports should help moderate the current account deficit in H2 FY2019 relative to H1 FY2019,” 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 per cent to $23 billion in September quarter this fiscal, from $14 billion in the same period last fiscal.

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

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

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