India’s current account deficit set to worsen again in Q2 2013, says Nomura
Moneylife Digital Team 23 May 2013
 “We expect the current account deficit to widen to 5.5-6% of GDP due to sluggish exports, front-loading of gold demand and a seasonal rise in imports,” said Nomura in its report on the Indian economy
 
After hitting a record high of 6.7% of GDP (gross domestic product) in Q4 2012,
India's trade deficit seasonally improved in Q1 2013, suggesting that the current account deficit (CAD) will narrow to 4%-4.5% of GDP in Q1. However, the trade deficit worsened again to $17.8bn in April. “We expect it to deteriorate further to $20.8bn in May, before showing some improvement in June,” said Nomura in its report on the Indian economy. 
 
According to Nomura, the sharp deterioration in Q2 2013 is partly due to seasonal factors, but it also reflects sluggish exports and the front-loading of gold demand in response to falling prices.
 
The recent fall in gold prices, if sustained, a moderation in CPI inflation and the RBI’s (Reserve Bank of India) restriction on gold imports on a consignment basis by banks should taper investment demand for gold over time—but the immediate reaction to lower gold prices has been higher demand, believes Nomura.
 
According to the brokerage, the current account deficit remains elevated and is expected to worsen to 5.5%-6% of GDP in Q2 2013, after the expected improvement in Q1. This suggests that financing the deficit still remains a concern.
 
Comments
Haresh Patel
9 years ago
This is a deadly amount of CAD. It means the current account may be negative or completely wiped out in less than 3 years. India's currency is not hard currency so imports may come to screeching halt. If oil imports are affected, it will cause a vicious circle of economic collapse.
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