Leading financial services firm Nomura today said the high current account deficit,which is hovering around 4 percent of GDP now,may come down this fiscal following massive fall in non-oil imports.
The contraction in non-oil import will be driven by a steep fall in the rupee against the American greenback,falling commodity prices and subdued investment inflows,Nomura said in a note.
“Elevated non-oil import bill has been one of the reasons,apart from weak exports,for the widening current account deficit. As such,a fall in non-oil import growth should help to reduce this deficit (CAD),” Nomura India economists Sonal Varma and Aman Mohunta said in a note today.
The current account deficit shot up to 4 percent last fiscal from 2.6 percent in the previous fiscal on the back of rising oil and gold imports.
“We expect non-oil import growth to decelerate to single-digit in the current fiscal from 24 percent last fiscal and 31 percent in FY11,” they said.
The country imports as much as 70 percent of its fuel needs,which crossed USD 150 billion last fiscal. Another key import bill comes from gold,which crossed USD 55 billion last fiscal. However,gold import is down 23 percent in Q1 and is set to fall with rising prices and rise in tax on imports.
The report said the non-oil commodity price growth will remain flat in FY13,while the rupee will average at 54.6 in FY13 versus 49.4 in FY12,and the real investment growth will be around 5.9 percent against 0.9 percent last fiscal.
Non-oil imports include gold,capital goods,coal,fertilisers and other metals,and comprises 70 percent of total imports,according to Nomura.
“Imports are now more expensive which should encourage reverse substitution (lower imports,higher domestic production). A lacklustre investment demand should also keep volumes subdued,” the report said.