India’s current account deficit (CAD) is likely to triple this year as a share of GDP, Nomura Holdings said in a research note on Monday.
India’s CAD is expected to rise from 1.2% last year to 3.5% of GDP this year, it said, upping its previous forecast of 3.3%.
A global economic slowdown will drive the widening deficit, added Nomura, which will have a more profound effect on India’s exports, than imports.
“While moderating commodity prices and the uneven pace of growth recovery will affect import growth in coming months, slowing global growth is likely to weigh further on exports and lead to persistently elevated trade deficits.”
Growing Monthly Deficits
Nomura highlighted that the average monthly trade deficit in this fiscal year to August has been around $26 billion, as against last year’s average of $16 billion.
“High monthly trade deficits are increasingly becoming the norm rather than exception. External sector risks remain elevated,” the research house said.
While foreign direct investment (FDI) flows are likely to remain stable, it is unlikely to fully offset the weakness in portfolio flows, it added.
- Reuters, with additional editing from Alfie Habershon