CAD will fall to 3.5% in FY13, says Citi report

 The country’s current account deficit (CAD) is set to fall below 3.5 per cent of Gross Domestic Product (GDP), says a Citi report which comes as a silverlining amidst a flurry of gloomy economic forecast after the dismal nine-year low growth of 6.5 per cent last fiscal.

“While most macro variables (growth, fiscal, inflation) still need to bottom out, the sharp fall in oil prices and lower gold demand are likely to stem weakness in the CAD,” the report says.

“We now expect the FY13 CAD to improve, albeit marginally to $65.3 billion or 3.5 per cent of GDP against an initial projection of $74.3 billion or 4 per cent of GDP in FY13,” Citi India Chief Economist Rohini Malkani says in the research report.

It is feared that the current account defict, the difference between a country’s exports and imports, will cross the 4 per cent mark, as till December, it was hovering around 4 per cent of GDP, which grew by a poor 6.5 per cent, the lowest in nine years.

The worry arises from the sharp deceleration in exports in Q4 of FY12 and not a commensurate decline in imports.

It can be noted that in FY11, the CAD stood at a comfortable 2.7 per cent of GDP, which grew 8.4 per cent.

While exports crossed the target by a small margin at $303.8 billion (against $300 billion target) so were imports, which touched $489 billion in FY12. Out of this, the oil bill stood at a whopping $155.6 billion, while gold and silver imports touched $61.5 billion. The country meets over 70 per cent of its oil needs by imports.

This projected improvement in the CAD is primarily because of the fall in oil prices and lower imports of gold, says the Citi report, which also projects a 20 per cent decline in gold demand.