Nomura sees current account deficit 4.2%

The current account deficit may touch 4.2 per cent of gross domestic product (GDP) in this fiscal as well, as upside risks to the external environment are rising for the economy, brokerage firm Nomura said today.

The brokerage had earlier forecast a tempered 3.8 per cent current account deficit (CAD), the difference between country’s total imports & transfers and total exports & outward transfers, for this fiscal, following steady fall in inward and outward shipments and the resultant narrowing of trade deficit in the first half of the fiscal.

In the past fiscal too CAD had hit a record of 4.2 per cent of GDP.

“With external situation remaining very worrying, we see more upside risks to our CAD projection of 3.8 per cent with the current trends suggesting that it could be as high as 4.2 per cent of GDP, which was recorded last fiscal,” Nomura India economists Sonal Varma and Aman Mohunta said in a note.

However, they blamed the latest spike in imports due to the import substitution, saying, “the phenomenon of rising imports and lower domestic output can be explained by increasing import substitution as a result of supply-side constraints and elevated inflation.”