India FY13 current account deficit seen at 4.2%: Nomura

Moneycontrol Bureau

Brokerage house Nomura sees India's current account deficit for this fiscal year climbing to last year's level of 4.2 percent. Unless foreign portfolio flows—equity and debt—are strong enough to bridge the gap, the rupee could once again come under pressure.

India's trade deficit—exports minus imports—stood at USD 19.5 for November, despite a slowdown in gold imports and a slight moderation in oil imports.

Exports declined 4.2 percent year-on-year in November, compared to 1.6 percent decline last month, the seventh straight month of decline.

"While gold imports declined this year, the benefit was offset by weak global demand (which hurt capital goods exports), export bans (on cotton and iron ore) and rising commodity imports of fertilizer and coal, among others. So trade deficit worsened despite the sharp domestic demand slowdown," wrote Nomura economist Sonal Varma in a note to clients.

A short term solution would be continued momentum in foreign portfolio flows. But that will depend on global factors, especially the developments in the US and the Eurozone.

"We expect the current account deficit in FY13 (year ending March 2013) to be just as high as in FY12 (4.2 percent of GDP) and ongoing strong portfolio flows are required to finance this deficit, which is a risk. Overall, Indi's external sector remains in a precarious state," Varma said in the note.

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• See FY13 fiscal deficit at 5.5% of GDP: Moody's