India’s current account deficit (CAD) is expected to print the worst figure of this financial year in the quarter ended June because of high gold imports.
However, given the curbs on imports and a rise in exports, economists expect the number to improve from the current quarter.
The numbers are due to be announced today.
After cooling off to 3.6% of gross domestic product (GDP) in the quarter ended March, CAD is expected to have crossed the 5% mark in the following three months.
The deficit was at 4% of GDP in the first three months of the last financial year.
Shubhada Rao, chief economist at YES Bank, sees CAD coming in at $24 billion, or 5.3% of GDP, in the first quarter.
“The first quarter data would be the worst point of stress this fiscal,” she said, adding that the sharp escalation in gold imports in April and May would be the key driver.
India is the world’s top consumer of gold.
The frenzied gold rush pushed trade deficit to over $50 billion in the first quarter of this financial year, higher than the $43.8 billion seen in the corresponding period last fiscal.
“After the quantitative restrictions, gold imports in July and August plunged by 40% and 74% as compared to last year,” analysts Tirthankar Patnaik, Prerna Singhvi and Saloni Agarwal of Religare Securities noted.
This, along with easing demand, should restrict the trade deficit to $12-13 billion per month through the fiscal, they said.
Anubhuti Sahay, economist at Standard Chartered Bank, said, “CAD in the second quarter may be much less than $20 billion.”
She expects CAD to peak out at $28 billion in the first quarter.
Growth in exports, which is back to double digits in the second quarter, would also help reduce the current account gap.
The government has pegged current account deficit at $70 billion, or 3.7%, of GDP for the current financial year, lower than $87.8 billion, or 4.8%, of GDP attained in 2012-13.
“Numbers could be better as gold imports have really collapsed. We have to see petrol and diesel prices, whether
there is a pick-up or not. If not, then there is a downward bias,” said A Prasanna, chief economist, ICICI Securities Primary Dealership.
Prasanna sees CAD printing at $22 billion in the first quarter.
The government and the Reserve Bank of India have taken a number of measures to curb the demand for gold in the past few months.
These include hiking of import duty on gold three times to 10% this year.
Recently, the import duty on gold jewellery was also increased from 10% to 15% in order to protect the interests of domestic artisans.