NEW DELHI: Days after the Finance Ministry admitted that there could be some slippages in the current account deficit (CAD), Ecowrap — an SBI research report — on Monday revised its estimation on CAD to 2.8 per cent on account of high crude oil prices and moderate growth in exports.“Rising oil price has already had an impact on our external balance in the last fiscal and is likely to have a further deteriorating effect on India’s current account balance this year too. We estimate that FY19 Current Account deficit might reach 2.8 per cent of Gross Domestic Product ($75 billion) with merchandise trade imbalance expected to increase to $187.8 billion as against $160.0 billion in FY18,” the report said.
In July, India’s trade deficit widened to $18 billion in July 2018, up from $16 billion, on account of higher oil import bill. Oil imports registered an annual growth of 57.4 per cent to $12.4 billion, from $7.8 billion in July 2017, and the report attributed the rise in the import bill to increase in oil price and rise in quantity of oil imported.
The huge increase in trade deficit is more linked to the average export performance so far in FY19, it said.
According to the report, CAD is still expected to be majorly financed by non-debt creating (FDI and FPI) capital inflows, which constitute around 44 per cent of the total capital flows. The report also warned that the financial account surplus is expected to come around $59 billion, lower than previous fiscal ($91.4 billion) due to foreign portfolio outflows which have already amounted to $9.3 billion till Jun’18, marginally impacting our forex reserve.
“Portfolio outflows have happened this year since the US economy and dollar started strengthening. This is expected to turn India’s overall Balance of Payment into deficit mode after six years, thereby implying forex reserves depletion of $16 billion (0.6 per cent of GDP) in the current fiscal,” the report added.
The debt-creating inflows which increased in the last fiscal year are expected to remain on the higher side this year as well, which will imply pressures on rupee in case there is a sudden reversal of capital flows, it said.