India's CAD will widen in current fiscal: govt sources

India's CAD will widen in current fiscal: govt sources

The finance ministry on Tuesday agreed that the current account deficit (CAD) would widen in the current financial year but stopped short of putting any number to it.

“The current account deficit position will not be as good as last year but India has sufficient foreign exchange reserve to defend the situation that may arise,” a top source in the finance ministry said.

Various agencies including brokerages have raised concerns of rise in the CAD to the extent of close to 3% in the fiscal ending March 2019 with the rise in oil prices, depreciation in the rupee and the foreign investors turning the other way.

According to government sources, India's crude oil import bill is likely to jump by about $26 billion in 2018-19 as the nosediving rupee has made offshore oil purchase costlier.

India's trade deficit or a gap between exports and imports has already been widening due to a higher oil import bill. This trade shortfall is expected to put pressure on the current account deficit, a key vulnerability for the economy.

CAD essentially means a country buys more goods and services than it sells. It is the difference between the inflow and outflow of foreign exchange. CAD widened to 1.9% of the GDP last fiscal ending March 2018. Certain agencies like Nomura and Moody's have predicted it may reach above 2.5%-2.8% by March 2019.

India's net oil imports accounted for an estimated 2.6% of GDP in the financial year 2017-18 and are expected to increase in the current financial year.

Another factor which has the bearing on CAD is the country's gold imports. Gold imports increased by 22.31% to $33.65 billion in 2017-18, the government data showed.

Imports of the yellow metal stood at $27.51 billion in 2016-17. In 2015-16, the imports aggregated at $31.7 billion.