Analysts see FY16 current account deficit halve to 0.6 per cent of GDP

The current account deficit is likely to halve to 0.6 per cent of gross domestic product (GDP) during 2015-16 from a little over one per cent in the current financial year on account of record low prices of oil, according to analysts.

"Looking further ahead, despite higher non-oil imports, lower remittances from the Middle East and sluggish outlook on exports, we believe the power of lower oil imports will be sufficient to halve the current account deficit to 0.6 per cent of GDP in FY16 from 1.1 per cent in the previous year," HSBC said in a note on Thursday.

According to DBS Bank, a Singapore-based brokerage, direction of oil prices will be an important determinant for the scale of improvement in FY16's current account deficit.

"The gap could narrow to 0.5-1 per cent of GDP in FY16, assuming prices remain around US $50-60 per barrel," DBS said.

Global ratings agency Moody's Investors Service said while a recovery in growth and the recent liberalisation of gold imports could lead to a further rise in imports over the coming quarters, subdued commodity prices were likely to keep the deficit from widening sharply.

"We expect the current account to be amply funded by foreign capital inflows, leading to a balance of payments surplus and build-up in reserves over the year," the rating agency said.

Standard Chartered Bank said in a note that it expected the current account deficit to widen from FY16 onwards, albeit at a gradual pace.

In the third quarter ended December 2014, the CAD doubled to US $8.2 billion (or 1.6 per cent of GDP), from US $4.2 billion (or 0.9 per cent of GDP) in the corresponding year-ago period.

On a sequential basis, however, the CAD, which is the gap between foreign exchange earned and spent, has narrowed from US $10.1 billion, or 2 per cent of GDP, in the September quarter, the Reserve Bank of India said.