India’s trade deficit for the current financial year is likely to be contained at USD 156 billion, resulting in the current account deficit coming in at USD 42 billion, Citigroup said.
The current account deficit (CAD), the difference between outflow and inflow of foreign exchange, would be about 2.3 percent of GDP due to the fall in gold and non-essential imports, the financial services major said in a report.
“For the current fiscal year (FY14), we expect the trade deficit to be contained at USD 156 billion vs USD 194 billion in FY13,” Citigroup said.
According to official figures, India’s exports grew 3.49 percent in December to USD 26.3 billion, while imports dipped 15.25 percent to USD 36.4 billion. The fall in imports was largely on account of a decline in gold and silver shipments.
The trade deficit for December stood at USD 10.1 billion.
Gold and silver imports in the April-December period declined 30.3 percent to USD 27.3 billion from USD 39.2 billion a year earlier. The government and the Reserve Bank of India had taken steps last year to curb gold imports in a bid to contain the CAD.
The government and the RBI expect the CAD to be below USD 56 billion in the current financial year compared with a record USD 88.2 billion, or 4.8 percent of GDP, last fiscal.
For the April-December period, exports aggregated USD 230.3 billion and imports USD 340.3 billion, while the trade deficit stood at USD 110 billion.
“Going forward, taking into account sequential trends of lower exports and bottoming out of imports, we maintain our estimate of the deficit narrowing to USD 156 billion,” according to the report.
On the rupee, Citigroup said though the impact of the US Federal Reserve’s tapering has been muted so far, a continued uptick in US treasury yields could put some pressure on currencies such as the local currency.
However, the narrowing of the CAD to below 3 percent of GDP and high foreign-exchange reserves would provide structural strength to the rupee against broad emerging market volatility.
“We maintain our view of the USD/INR likely to trade in the Rs 60-63 range in the next few months,” Citigroup said.
The rupee is currently hovering around the 61/USD level.