Expect FY15 CAD at 1.4% on lower crude prices: Macquarie

Also read: India may see current account surplus after 7 yrs: Nomura

India’s current account has been in deficit for the last 10 years.

Below is the verbatim transcript of Tanvee Gupta’s interview with Latha Venkatesh and Ekta batra on CNBC-TV18.

Latha: How are you expecting the current account, first of all, the trade deficit numbers for February, March to pan out and therefore what kind of a current account deficit or surplus are you looking at for the current quarter?

A: On the trade deficit number, largely our view is that most of the impact of lower oil prices will start flowing into the numbers. At the same time we are expecting gold imports to remain largely manageable around a USD 1.5 bilion-2 billion mark. So, if you look at my current account deficit numbers, I am actually expecting a surplus in the March quarter. Partly it is on account of seasonality and partly; on account of the lower oil import bill which will be reflected in the march quarter. We are at 1.4 percent of GDP current account deficit for FY15.

Latha: And for FY16?

A: We are expecting a slight deficit of 0.9 percent of GDP for FY16 but again if the government is going to devise the national account number data, historical, the base year will get revised. Automatically the deficit because it is looked as a percentage of GDP. You could see a slight improvement versus 0.9 percent of GDP what we are expecting.

Ekta: When you talk about this 0.9 percent current account deficit target for FY16, what are you factoring in, in terms of oil; prices and what is the upside risk to this target so maybe your upside range?

A: Okay, we have assumed that oil prices average USD 50 a barrel; for the full year and my net oil imports are actually going down to USD 48 billion in FY16 versus USD 68 billion in FY15. Again I would say the biggest risk to my numbers could be any surprise in the global growth environment because if you look at Rupee largely as you was talking about that Rupee has been pretty stable and in fact it has been the strongest currency. If you look at across Asia excluding Japan, a stronger currency does not bode very well for the export growth. So, we are seeing is that the rupee is appreciating against major trading partners which again could put my current account deficit number a lot higher than what I am building in.

Latha: What is your sense of Balance of Payments surpluses for this quarter and FY16? What are you factoring in? Looks like there will be a lot of money flowing in and very little flowing out.

A: Largely I would say for FY16 because we are only expecting a slight current count deficit in capital flows and will be buoying, that is some where around USD 65-70 billion. I would say the BOP surplus next year could be as high as USD 45-55 billion . This year again we will see a BOP surplus but not to that extent, roughly in the range of USD 20-25 billion but largely in FY16 when we should see a significant BOP surplus.

Latha: What is your sense of Balance of Payments surpluses for this quarter and FY16? What are you factoring in? Looks like there will be a lot of money flowing in and very little flowing out.

A: Largely I would say for FY16 because we are only expecting a slight current count deficit in capital flows and will be buoying, that is some where around USD 65-70 billion. I would say the BOP surplus next year could be as high as USD 45-55 billion . This year again we will see a BOP surplus but not to that extent, roughly in the range of USD 20-25 billion but largely in FY16 when we should see a significant BOP surplus.

Latha: So what does this do to the Rupee?

A: Okay, if you look at the external stability of this, we are definitely improving and if you look at the investor interest on India, that is again very positive and that is the biggest reason why we are seeing the rupee has been pretty stable or in fact has been appreciating. But largely I would say in the near term, I do see a deprecation bias in the Rupee. That will be beneficial because I will try to look at the Rupee on a real effective exchange rate basis and even adjust it for productivity differential and it is actually moving towards the overvalued zone. So , I would ideally like rupee to be trading somewhere around Rs 63-64 and as reform momentum kicks in and we start seeing growth recovery, I would expect rupee to go back Rs 60-63 towards the year end.

Latha: So what does this do to the Rupee?

A: Okay, if you look at the external stability of this, we are definitely improving and if you look at the investor interest on India, that is again very positive and that is the biggest reason why we are seeing the rupee has been pretty stable or in fact has been appreciating. But largely I would say in the near term, I do see a deprecation bias in the Rupee. That will be beneficial because I will try to look at the Rupee on a real effective exchange rate basis and even adjust it for productivity differential and it is actually moving towards the over valued zone. So , I would ideally like rupee to be trading somewhere around RS 63-64 and as reform momentum kicks in and we start seeing growth recovery, I would expect Rupee to go back to Rs 60-63 towards the year end.

Ekta: We have got news about the Coal India auction or OFS rather taking off and the telecom auction which will kick in this fiscal as well. What does that do to your fiscal deficit estimates and take us though the math?

A: If you look at my divestment numbers we are actually expecting that the fiscal deficit shall be on target, We are at 4.1 percent of GDP for this year. Now if you look at the math, we were already estimating Rs 300 billion proceed s from divestment so if the Coal India auction actually which is getting announced is positive is because it will give us another Rs 240 billion. Rs 17 billion has already been collected under the SAIL auction and we still have two months to go.So we think that even thought the divestment proceeds would be lower than what the government was targeting at the start of the year but even if they are able to manage around Rs 300-350 billion, I believe that you should be able to achieve the fiscal deficit. At the same time if you look at the other things, the expenditure management, I believe is the biggest thing because if you look at right now the tax revenue collection till date is only growing by four percent in the gross tax collection. And the targeted growth is 20 percent. There is no way you can achieve the targeted revenue collection growth even though via seasonality March quarter tends to be a good quarter. So we are expecting the government to curtail expenditure which we have already seen in the progress so far so, we are expecting Rs 400 billion cut in the non-plan expenditure.