New Delhi:The Current Account Deficit (CAD) is expected to fall below 1 per cent in the next fiscal on the back of easing of global commodity prices including petroleum products, the Economic Survey 2014-15 said today.
"Assuming a further moderation in average annual price of crude petroleum and other products, the current account deficit is estimated at about 1.3 percent of GDP for 2014-15 and less than 1.0 percent of GDP in 2015-16," the Survey tabled by Finance Minister Arun Jaitley said.
The CAD is the net difference between outflows and inflows of foreign currencies.
Global crude petroleum prices averaged about USD 47/ bbl in January 2015 and about USD 90/bbl for the year as a whole (April 2014-January 2015).
Reduction in CAD to about one one percent in the coming fiscal year has made India an attractive investment destination well above most other countries, the survey said.
The outlook for the external sector is perhaps the most favourable since the 2008 global financial crisis, and especially compared to 2012-13, when elevated oil and gold imports fuelled a surge in the CAD.
CAD had peaked to 6.7 percent of GDP in the third quarter of 2012-13.
A rule of thumb is that a USD 10 reduction in the price of oil helps improve the net trade and hence current account balance by USD 9.4 billion, the survey said.
Moderated gold imports will also help sustain a manageable current account deficit. Since the elimination of restrictions on gold in November, gold imports have fallen well below the elevated levels seen in 2013, it said.
Declining international prices as well as moderating inflation have meant that gold imports averaged USD 1.3 billion in December 2014 and USD 1.6 billion in January 2015 compared with USD 4.2 billion in October 2014 and USD 5.6 billion in November 2014, it said.
The outlook for external financing is correspondingly favourable, and surfeit rather than scarcity may pose the greater challenge.
Financial flows in 2014-15 are likely to be in excess of USD 55 billion, leading to a sizeable accretion to reserves by about USD 26 billion, to about USD 340 billion.
This has been facilitated by extensive RBI exchange market intervention. These inflows are likely to continue through a large part of 2015-16, it said
A key implication is that if the current account deficit is lower, a given level of capital inflows will create greater upward pressure on the rupee.
