Citi pegs India's CAD at 1.8% in FY15 on gold import curbs, falling oil prices

Citi, the leading US-based brokerage, on Thursday said it expected the country's current account deficit (CAD) to remain under 2 per cent for the current fiscal year due to softer crude price and continuing curbs on gold imports, notwithstanding the spike in inward shipments of gold and coal in September.

Despite the fact that April-September trade deficit at US $70.4 billion inched closer to the year-ago period at US $76.7 billion, we expect the total CAD for FY15 to remain in check at US $36.7 billion or 1.8 per cent of GDP (gross domestic product) due to softer crude and continuing curbs on gold imports, Citi said in a report.

The largest component in computing CAD is trade deficit.

In September, the country's trade deficit widened to US $14.2 billion from US $10.8 billion in August on account of a sharp uptick in imports and subdued trends in exports growth.

The spike was mainly due to gold imports which rose to US $3.8 billion in September from US $2 billion last month, possibly reflecting a surge in demand due to the festive season the brokerage said. In September, exports rose by 2.8 per cent to US $28.9 billion while imports surged 26 per cent to US $43.2 billion.

Attributing the spike in imports to festive demand and base effect, Citi said falling crude prices would temper the import bill going forward.

While gold imports soared 470 per cent to US $3.8 billion, non-oil, non-gold imports stood at US $24.9 billion, up 22.2 per cent. Imports of petroleum products and electronic goods were down 4.6 per cent and 17 per cent respectively.

Explaining its optimism on lower CAD, Citi said it expects stable trends (from 1.7 per cent to 1.8 per cent) to continue in FY15. Our assumptions include exports rising 7.5 per cent (Apr-Sep growth at 6.5 per cent); gold imports at US $30 billion based on 725 tonne and prices at US $1250/oz (Apr-Sep imports at US $15 billion); oil prices averaging US $100/bbl; non-oil/non-gold imports up 11.8 per cent which is in line with a gradual pickup in GDP growth.

The American brokerage also noted a series of policy measures with favourable global developments brought the FY14 CAD down to 1.7 per cent of GDP from record high levels of over 4 per cent in FY12 and FY13.