Trade Gap To See Huge Improvement On Lower Imports: Experts

India's Current Account Deficit is likely to narrow during 9 months (July-March) of the current fiscal to touch a low of 1.5 percent of GDP because of lower gold imports, higher overall exports and a drop in imports due to tapering domestic demand, analysts say.



"CAD will be less than USD 10 billion in Q2 (July- September), which will be 1.5-1.7 percent of GDP, and for the whole year we maintain that CAD will be around 3.8 percent of GDP or USD 67-68 billion," a State Bank research report said today. CAD, which indicates imports of goods services and transfer are higher than their exports, widened to 4.9 percent of GDP, or USD 21.8 billion, in Q1 of FY14 as against 4 percent of GDP, or USD 16.9 billion, in the year-ago quarter.



Also Read: Emerging market firms to reshape corporate world, says Report Widening of Q1 CAD was on account of rise in imports by 4.7 percent and decline in exports by 1.5 percent. "The current account gap will exhibit an improvement in the coming quarters due to the curbs on gold imports, a weak rupee benefiting exports and a sharp slowdown in domestic demand pulling down consumption and investment good imports." credit rating agency Crisil said. During July-August, exports grew 12.3 percent, while imports fell 3.6 percent, Crisil noted.



Gold imports have already come down with July-August figure nearly 300 tonne lower over the first quarter, it said. "Nonetheless, indications are that the CAD shortfall has peaked and is poised to witness some improvement here on," DBS Bank said in a report. Analysts felt exports are likely to pick up as the US economy is expected to grow at 1.7 percent and there are signs of improvement in the European Union. "An increase in exports would be further aided by the recent rupee fall, which has enhanced export competitiveness of India's goods and services," India Ratings said. Crisil said narrowing CAD and higher capital inflows in the second half of the fiscal will help stabilise the rupee.



"In the second half of the fiscal further easing of CAD and some pick-up in capital inflows - if the RBI and Government's measures at bringing in foreign capital yields fruit - could stabilise the rupee." The rupee fell to a life-time low of 68.85 against the US dollar on August 28. However, it has recovered more than 10 percent in September.

Source:- moneycontrol.com