Mumbai, Jun 29 (PTI) Despite the pressure on the current account deficit (CAD), which had shot up to 4.2 percent of GDP last fiscal, it is likely to be narrow down going forward, research and brokerage firms said today. "We expect the CAD to narrow going forward on account of falling crude oil prices, lower demand for
gold and the lagged impact of the rupee depreciation on trade balance," Nomura India chief economist Sonal Varma said in a note. The current account deficit (CAD) widened to the highest-ever level to 4.5 percent of GDP at USD 21.7 billion in the January-March period of 2011-12 due to higher import of oil and gold, the Reserve Bank data said today. For the entire financial year 2011-12, CAD, which represents the difference between exports and imports after considering cash remittances and payments, stood at 4.2 per cent of GDP at USD 78.2 billion-- again the all-time high level. "On account of large trade deficit, the CAD rose sharply to USD 21.7 billion in Q4 from USD 6.3 billion in Q4 of FY11. At this level, CAD works out to be 4.5 percent of GDP (the highest-ever) in Q4 of FY12 compared with 1.3 percent a year ago," RBI said while releasing the balance of payment (BoP) statement. Icra senior economist Aditi Nayar said though falling commodity prices have given some comfort to rising CAD, the pressure is likely to continue due to rising imports of coal. "Recent commodity price movements have eased concerns regarding the size of the CAD in the current fiscal. However, rising demand for commodity imports such as coal would exert continued pressure on the current account balance, funding of which is likely to remain challenging in the current year," Nayar said. Similarly, a note from Emkay Research said the BoP deficit situation to continue for next two quarters. "We expect the BoP deficit to sustain for at least another two quarters," it said, adding the vulnerability of BoP and a weak rupee will curtail RBI's headroom for monetary easing in the future. In a note yesterday, Goldman Sachs analysts Michael Buchanan had said that the CAD may have peaked over the past year and a half. "We think the CAD may have peaked in FY12, and will improve gradually due to the sharp rupee depreciation and the falling oil prices. In our base case scenario, the CAD could fall to 3.5 percent of GDP in FY13," Buchanan said. PTI DM BEN ABC
