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CAD in Q1 likely at 4% on gold import surge: DBS

By Super

CAD in Q1 likely at 4% on gold import surge: DBS
Mumbai: The current account deficit may have widened to 4 percent of GDP in the first quarter due to a surge in gold imports and a deteriorated trade gap, a report said Sunday.

"Our estimates for a shortfall in the current account of about USD 23 billion, are close to 4 percent of the gross domestic product. The reasons for the same are two--a sharp jump in gold imports and deterioration in the trade balance," a report by DBS Bank said.

The RBI will release the June quarter current account deficit on Monday. Government aims to contain current account 3.7 percent of GDP for the entire fiscal.

Meanwhile, a finance ministry official said: "Moderation in exports is likely to have pushed India's current account deficit for the first quarter of FY 2014 fiscal to about 5 percent of Gross Domestic Product (GDP) as against 3.9 percent in April-June 2012."

For the April-June period this fiscal, exports were down by 1.41 percent at USD 72.45 billion. However, imports during the period were up by 5.99 percent at USD 122.6 billion.

DBS said trade deficit rose 10 percent to USD 51 billion in the April-June quarter, signalling a wider CAD, despite an anticipated pick-up in the service receipts.

Trade deficit has been fuelled by high imports of gold and crude oil, contributing to the widening CAD, which touched an all-time high of 4.8 percent of GDP, or USD 88.2 billion, in FY 2013.

The DBS report said the country's financing ability was eroded due to significant outflow from the equity and debt markets since late-May caused by the fear of rollback of monthly asset purchases by the US Federal Reserve.

"The FII equity inflows maintained strength in April-May before witnessing modest outflows in June. The debt counterpart, however, fared poorly as the scale of June 13 outflows reversed the inflows seen in the prior eight months," the report said.


The country, on net basis, registered outflows in the quarter, the DBS Bank report said. The offshore borrowings in the June quarter slowed significantly and are likely affected by rupee depreciation and financial uncertainties, the report said.

The rupee depreciated nearly 9.5 percent in the April-June quarter as FIIs pulled out money on concerns over early withdrawal of easy money policy by the US Fed.

The report said the preferable non-debt creating flows, i.e. foreign investment flows in the meantime, fell 19 percent. "Sign of renewed weakness in the CAD, despite being backward looking, could trigger worries," DBS Bank said.


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