India’s current account deficit or CAD for this fiscal is likely to rise to $92 billion or 5% of the GDP from 4.1% projected earlier, a Bank of America Merrill Lynch report said.
CAD had touched a record high of 5.4% of GDP in the July-September quarter. CAD is the difference between forex earned and forex spent.
“We expect large current account deficit to persist as long as we live in a world of low growth hurting exports and high liquidity.” Pumping up the oil import bill will likely to persist till 2014.
Moreover trade statistics are likely over-estimating oil imports by 0.7% of GDP.
The report said the Commerce Ministry’s April-January oil imports at $140 billion is higher than oil ministry’s $127 billion including gas imports .
According to the report “Going ahead some easing in the CAD is likely as it is expected to fall to 3.8% of the GDP in FY-14 with statistical corrections and some steadying in coal and gold imports.”
The best defence against high CAD levels is surely for the RBI to recoup forex to arrest falling import cover. the report said.