India’s trade deficit for the ongoing financial year (FY14) is likely to be contained at $144.9 billion, which will help the country narrow down its current account deficit to $36.8 billion, according to a report by Citigroup.
The improvement in the current account deficit is largely due to the narrowing of the trade deficit and the success of the FCNR deposit scheme, according to the financial services major.
The Reserve Bank of India (RBI) had in September offered special concessional windows for swapping foreign currency non-resident (FCNR) deposits and for overseas borrowings by banks. The two swap windows mobilised $34 billion, the RBI said on December 2.
“Taking into account the sharper-than-expected fall in ‘non-oil/non-gold’ imports, we estimate the trade deficit narrowing to $144.9 billion vs. $194 billion last year,” Citigroup said. It also said it expects FY14 current account deficit “to come in at $36.8 billion or 2 per cent of GDP”.
In the next financial year (2014-15), the trade deficit is expected to rise marginally to $156 billion and the current account deficit may reach $46.7 billion, or 2.3 per cent of GDP.
According to a Finance Ministry official, the current account deficit is expected at $45 billion in the current financial year. The apex bank last month projected the current account deficit to be less than $50 billion, or 2.5 per cent of GDP. The gap in 2012-13 was $88.2 billion, or 4.8 per cent of GDP.
Citigroup said the narrowing of the trade deficit in FY14 cannot be attributed only to restrictions on gold imports and that it is more “broad-based”.
Exports have risen, led by petro products, textiles and transport equipment, while imports, apart from gold, have also declined due to lower inward shipments of capital goods, the report said.
Gold and silver imports declined 77 per cent to $1.72 billion in January, mainly due to curbs imposed by the government on inbound shipments of the precious metal, which are aimed at narrowing the current account deficit.
India’s exports grew 3.79 per cent to $26.7 billion in January and the trade deficit narrowed sharply to $9.92 billion, the government said on Tuesday.