Speaking to CNBC-TV18 on CAD estimates, Sonal Varma, India Economist, Nomura Financial Advisory & Securities says she expects Q1FY14 deficit number to be around 6.1 percent due to high gold imports.
The current account deficit (CAD) for the June quarter (Q1 FY14), is likely to come at 6.1 percent of gross domestic product (GDP), due to higher gold imports, believes Sonal Varma, India Economist, Nomura Financial Advisory & Securities.
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On the other hand Haseeb Drabu, economist, expects the macro data to come between 3 and 3.5 percent for FY14. The government will be releasing the country's balance of payment numbers today.
Below is the edited transcript of the interview to CNBC-TV18.
Q: What is the number that you are going with?
Varma: For the June quarter, we are expecting a current account deficit of USD 27 billion which amounts to 6.1 percent of gross domestic product (GDP). This quarter clearly has seen a significant increase in gold imports plus exports so we were looking at USD 27 billion which is substantially higher than last quarter USD 18 billion.
The current account deficit (CAD) numbers should improve going forward but this quarter will be pretty bad.
Q: You did mention a significant increase in gold imports – what is the number that you are going with today?
Varma: We are expecting a USD 27 billion CAD which is 6.1 percent of GDP and gold imports in the June quarter have been close to USD 17-18 billion in the first quarter itself.
Q: USD 27 billion would be pretty ugly. If you looked at the trade deficit the market should not be terribly surprised with that – do you think the rupee will react negatively at all even if it comes at USD 27 billion since that is the lag indicator and July-August have been good numbers on trade deficit?
Varma: The CAD numbers are a lag indictor, so to that extent the reaction should be muted. But given the moderation we have seen in the trade deficit number in the near-term, expectations on current account are now moving in the direction of being over optimistic. Numbers significantly lower are being talked about now.
While that maybe the case, in the next quarter- July-August-September quarter, we would be wary about annualising the current trend in trade deficit because seasonally, there will be some worsening of the trade deficit number in the October-November period. I don’t think the CAD for the full year is going to be under USD 50 billion which some people are starting to talk about.
Q: What is your sense on current account deficit itself? Are we actually structurally getting to a better position at all or we will still live with a lot of pain and it will be north of 3 percent for the foreseeable future?
Drabu: Surely. There isn’t any doubt that it will be north of 3 percent. It will probably closer to 4 percent than 3 percent. I think we tend to look at it only from certain external balances perspective whereas the resolution in the long-term structural sense will be to look at the saving investment gap, which has come down.
One should move away from this arithmetic understanding of the CAD in terms of higher exports, lower imports to a saying that saving investment gap is translating itself into a financing from abroad and that is how it has been done. The fact that your savings have dropped faster than your expenses and investments have dropped, is a bigger cause for concern.
It is more of a macro economic problem than it is a trade and external account problem. That is where the solution would lie. I would not be surprised if today the first quarter numbers definitely look like an outlier.
Q: For the full year itself what is your estimate on the CAD because we are getting some very optimistic views coming in from the finance minister on a bigger improvement that we might see – are you hopeful as well?
Drabu: I don’t know where it is coming from. My own sense is it will be about 3.5-3.7 percent of GDP. One may come closer to 4 percent than to 3 percent.
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