India’s Current Account to swing into surplus for the first time since 2004

Moneylife Digital Team 22 January 2015

According to Morgan Stanley estimates, India’s current account will swing into a minor surplus of 0.3% of GDP in 2015 on improving terms of trade and decline in gold imports

India’s current account has been consistently in deficit over the last 10 years. Indeed, in 2012 it reached a peak of 5% of GDP. However, the current account deficit has been narrowing steadily since then, to an estimated 1.6% of GDP in 2014. Morgan Stanley, in a report, estimates that the current account of India will swing into a minor surplus of 0.3% of GDP in 2015 (0.1% in F2016). The summary of the surplus position is shown in the chart below:

Morgan Stanley cites improving terms of trade, helped by declining global commodity prices (specifically oil) and a decline in gold imports as inflation expectations normalize to 5%-6% and real deposit rates remain decidedly positive. This is shown in the chart below:

Morgan Stanley expects the current account to move back into deficit in F2017. However, it estimates the deficit to be relatively small at 1.1% of GDP – and well within policy makers’ comfort zone of 2.5% of GDP.

The research note however, warns that given India’s high dependence on oil imports (with approximately 75% of total consumption being imported), a swing in oil prices would have a meaningful impact on the outlook for the current account balance. The data in this regard is shown in the table below:

Comments

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Kailash Ganesan

10 years ago

Can you show me whether we had surplus in 2004 ? Govt. site clearly tells that we had deficits refer http://www.indiabudget.nic.in

vishal

1 decade ago

gold imports might have come down but this will have no impact on its prices internally. This factor might affect current account deficit. Again a lot of gold is being smuggled inside the country. This will act as a barrier for keeping investments elsewhere. The only plus factor as of now is crude oil imports. It looks most certainly the price may not jump to affect our growth and exports.