Global financial services major Nomura has revised upwards India's CAD forecast to 1.4 percent of GDP for the current fiscal from 0.4 per cent earlier.
According to the Japanese brokerage firm India's trade deficit widened to a 16-month high of USD 13 billion in November from USD 10.4 billion in October, as a result of a sharp slowdown in exports after demonetisation and a pickup in imports, led by gold and higher commodity prices.
"We revise up our current account deficit (CAD) forecast to 1.4 per cent of GDP in FY17 (vs 0.4 per cent earlier)," Nomura said in a research note.
For the fourth quarter (October-December) of this year Nomura expects a current account deficit of 2.5 per cent of GDP (versus 0.9 per cent earlier) and for the January-March period, it is likely to be around 2 per cent of GDP.
"For FY17 (year-ending March 2017) we are raising our current account deficit forecast to 1.4 per cent of GDP from 0.4 per cent earlier, taking into account weaker exports after demonetisation and higher commodity prices," Nomura added.
Export growth slowed to 2.3 per cent year-on-year in November from 8.2 per cent in October, led by a sharp slowdown in export volumes, as demonetisation affected the employment-intensive gem and jewellery and textiles sectors, the report said.
"We expect exports to remain weak for as long as the cash crunch continues, which we expect until February," Nomura added.
According to official figures, exports rose for the third straight month in November, recording a growth of 2.29 per cent, though the trade deficit shot up to about two-year high of USD 13 billion mainly due to increase in gold imports.
Commenting on the data, the report said that the jump in gold imports is transitory, and demonetisation is expected to reduce demand for conspicuous consumption items such as gold.
"The relative strength in November imports suggests that some orders may have been placed well before demonetisation was announced," it said.
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