StanChart (Standard Chartered Bank) today substantially lowered the current account deficit (CAD) projection in India to USD 45 billion from earlier estimates of USD 71.8 billion after trade deficit sharply declined in September.
India's trade deficit for September was USD 6.7 billion, much lower than our estimate of USD 10.5 billion. This was the best monthly print in the last 30 months, StanChart said in a report.
"The 2013-14 CAD could be close to half of its 2012-13 level after this improvement in the trade balance. Policies to address the CAD seem to have worked and investors will now have one less macro challenge to worry about in India," it said.
With softer trade deficit numbers for the last four months, the second quarter trade deficit has dropped to USD 30 billion from USD 50.5 billion in the first quarter, it said.
"We now lower it to USD 45 billion (2.5 per cent of GDP) from 4 per cent of GDP (USD 71.8 billion) previously. We maintain our capital-flow forecast of USD 65 billion for 2013-14," it said.
However, in light of expectation of a sharp correction in the CAD, the balance of payments (BoP) forecast is now USD 20.6 billion, much better than the initial BoP projection of USD 6.8 billion.
With regard to gold imports, it said, after measures to curb imports were announced in July, total gold imports for August and September fell to only about USD 1.5 billion. These are the lowest readings in 52 months.
However, gold imports may pick up as India enters the festival season in October-November. It is possible that gold imports will return to a monthly pace of USD 3-4 billion, it said.
Rupee depreciation and slow domestic growth are affecting import demand for certain capital goods.
For the April-August 2013 period, machinery imports and project goods imports fell 12 per cent and 38 per cent respectively.
Standard Chartered sharply cuts India current account gap target
(Reuters) Standard Chartered sharply cuts its forecast on India's current account deficit for 2013-14 to $45 billion, or 2.5 percent of GDP, from its August expectation of $71.8 billion, or 4.0 percent of GDP, on likely subdued oil imports and robust exports in the second half of the current fiscal year that started in April.
India's balance of payments now expected to be a surplus $20.6 billion in 2013-14 versus a previous forecast of a deficit $6.8 billion, Standard Chartered said in a note on Thursday.
"Policies to address the C/A deficit seem to have worked and investors will now have one less macro challenge to worry about in India," Standard Chartered economists wrote in the note.
The bank maintains its projections on capital account for the current fiscal year at $65 billion.