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“Despite our estimate on capital inflows remaining broadly unchanged at $62 billion in FY11-12 and $73 billion in FY12-13, our forecast of a widening current account deficit would likely result in a marginal drawdown in reserves to the tune of $2 billion against an accretion of $4 billion expected earlier,” a Citi report said
Mumbai: Balance of payment surplus (BoP) reported in the first half of the current financial year is unlikely to be sustained in the second half due to a marginal drawdown on the reserves, reports PTI quoting a Citi report.
“Despite our estimate on capital inflows remaining broadly unchanged at $62 billion in FY11-12 and $73 billion in FY12-13, our forecast of a widening current account deficit would likely result in a marginal drawdown in reserves to the tune of $2 billion against an accretion of $4 billion expected earlier,” the Citi report titled ‘India macro flash’ said.
Balance of payment is a statistical statement that summarizes, for a specific period, transactions between residents of a country and the rest of the world and the account classifies transactions under two heads—capital account and current account.
The report also notes that external funding requirement will remain the key focus in the next financial year.
In the second quarter, the BoP showed a marginal surplus of $276 million compared to $3.29 billion a year-ago.
During the first quarter, BoP surplus was at $5.44 billion, taking the total account showing an overflow of $5.7 billion for the first half.
However, the report notes that higher forecast of crude oil prices of around $110 a barrel from $95 earlier, coupled with slowdown in exports will result in higher current account deficit (CAD), which in turn will affect the BoP situation.
As per the report, current account deficit will widen to 3.5% of gross domestic product (GDP) in FY11-12.
“Looking ahead, we now expect... the higher trade deficit is likely to result in a slightly wider CAD of $64 billion or 3.5% of GDP in FY11-12 and $74 billion or 3.6% in FY12-13 against 2.9% and 3% earlier,” the report said.
Current account deficit occurs when a country’s total imports of goods, services and transfers are greater than its total export of goods, services and transfers.
However, the report notes the Reserve Bank of India (RBI) will use all its leverages to attract inflows.
“Over the last few months, to attract inflows, the RBI has been relaxing its restrictions on pricing and the quantum of inflows,” the report said, adding the central bank may take further measures like opening of FDI to more sectors, possibility of a commercial dollar bond issue, and opening of dollar swap lines among others.