India’s current account deficit is expected to widen to 1.6 per cent of GDP in 2017 as domestic recovery is likely to further boost import growth, says a Nomura report. According to the global financial services major, despite the widening, the current account deficit remains within sustainable limits. “We expect India’s current account deficit to widen to 1.6 per cent of GDP in 2017 from a deficit of 0.5 per cent in 2016, as we expect the domestic recovery to further boost import growth, while rising protectionism could hurt invisibles inflows,” Nomura said in a research note.
The current account deficit (CAD) increased to USD 7.9 billion, or 1.4 per cent of GDP, in the October-December quarter of 2016 due to a fall in services exports. However, the current account deficit remains within sustainable levels, Nomura said, as net FDI inflows at around 2 per cent of GDP fully fund the deficit, leading to a stable basic balance of payments.
The CAD — the difference between the value of imports of goods, services and investment incomes, and that of exports — stood at USD 3.4 billion in the July-September quarter. On capital account, the report said with FCNR (B) redemptions now completed, the capital account surplus is likely to double in 2017, boosted by higher growth and ongoing economic reforms.
Some of the main risk to the external sector are sharp rise in oil prices and rising US protectionism, as the latter could further slow software exports and remittances, hurting the current account balance at the margin, it added.