With the higher trade deficit and slower pace in GDP growth rate, the CAD/GDP ratio is expected to stand at 0.9% for FY18.
Current Account Deficit (CAD) to GDP ratio likely to increase as growth in imports outpaces exports. India's merchandise exports have recorded 9.0% growth during FY18 (Apr-July), whereas imports have expanded by 28%. Growth in import has outpaced the growth in export on account of higher import of precious mental. As a result, the trade deficit has reached $52 billion during the reference period, which is almost double of the same period in FY17.
The unexpected growth in import is result of higher import of precious metal before the implementation of GST, which is transient. However, growth in import is likely to be firm over the year a on account of higher commodity price and strong Indian rupee. Acuité expects the merchandise exports to grow at around 8-9% in FY18. Similarly, imports are expected to grow at around 15% over the year. As a result, trade deficit is likely to be wider further. Therefore, we expect the Current Account Deficit (CAD) to increase to 0.9% of GDP in FY18 due to higher trade deficit and slowdown in GDP growth. The ratio had stood at 0.7% in FY17.
Principal factors influencing the category
International Conditions |
Exchange Rate |
Demand Supply Equilibrium |
Consumer Sentiment/ Inflationary Situation |
Economic Growth & Outlook |
Government Policy & Support |
Financial Year | Exports/GDP | Imports/GDP | CAD/GDP |
FY14 | 17.2 | 25.1 | 1.7 |
FY15 | 15.6 | 22.7 | 1.3 |
FY16 | 12.7 | 19.0 | 1.1 |
FY17 | 12.4 | 17.3 | 0.7 |
FY18 | 14.0 | 20.2 | 0.9 |
Source: RBI, Acuité Research
Note: "*" indicates Acuité estimates