India's current account deficit is likely to be 4.3 percent of the GDP, with "risks biased towards a wider deficit", Barclays said today.
This is notwithstanding trade deficit falling to 10-month low of USD 14.9 billion in February on improving exports and a sharp drop in imports , it added. "Even with the lower trade gap in February, India's trade deficit remains high and its external position remains a concern," Barclays Capital economists Rahul Bajoria and Siddhartha Sanyal said in a research note.
"Recent trends in trade flows and the balance of payments suggest that the current account deficit for FY 2012-13 is likely to remain above the previous year's 4.2 percent of GDP," the report said.
The current account deficit (CAD) represents the difference between inflows and outflows of foreign currency. The CAD had touched a record high of 5.4 percent of GDP in the July-September quarter.
The trade deficit in January widened to USD 20 billion, the second highest rise ever in a month. The biggest trade gap of USD 21 billion was recorded in October, 2012. Moreover a high deficit is likely to remain a "drag" on the rupee, Barclays said adding that the rupee is likely to be around 55/USD in the next 12 months.
Currently, the rupee is hovering around the Rs 54 level against the US dollar. Meanwhile, the Reserve Bank of India has also expressed concerns over high CAD and said that a high CAD will threaten macroeconomic stability and impact growth.
"Large fiscal deficits will accentuate the CAD risk, further crowd out private investment and stunt growth impulses," RBI had said in its third quarter monetary policy review.
Over the last few months, the government has taken several steps to boost dollar inflows like de-regulating NRI deposit rates, relaxing ECB norms, increasing FII debt limits, liberalisation of FDI and postponement of GAAR and higher duties on gold.
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