India's current account deficit (CAD) is likely to widen to 1.3 per cent of GDP in 2017 from 0.6 per cent in 2016, largely owing to stronger domestic growth in the second half of this year, says a Nomura report.
According to the Japanese financial services major, import demand is expected to resume once GST disruptions settle down after July.
"We expect India's CAD to widen to 1.3 per cent of GDP in 2017 from 0.6 per cent in 2016, as import growth should pick up in the second half of 2017 due to a stronger domestic recovery, while protectionist policies will likely hurt services exports," Nomura said in the report.
It said export growth moderated sharply to 4.4 per cent in June from 8.3 per cent in the previous month, while import growth eased to 19 per cent from 33.1 per cent in May.
"Overall, India's trade deficit narrowed to $13 billion in June from $13.8 billion in May, wider than expected," it said.
The report said lower commodity prices and adverse base effects will continue to cap the year-on-year growth rates in second half of 2017, partly offsetting the continued recovery in advanced economies.
On imports, some moderation was expected given the slowdown in production ahead of GST, but import demand may resume once GST disruptions settle down after July, it said.
"For the full year, we expect the current account deficit to widen to 1.3 per cent of GDP from 0.6 per cent in 2016, owing to stronger domestic growth in second half of 2017," Nomura said.
According to Reserve Bank data, the current account deficit soared to $3.4 billion, or 0.6 per cent of gross domestic product (GDP), in the fourth quarter of 2016-17 fiscal, from $0.3 billion a year ago.