CAD/GDP ratio

Next update in January 2021

Next update in January 2021

 

 

  • With ₹4200 crore, India’s current account balance (CAB) turned into positive in Q4, FY20, which is first time in recent history of past 10 years.
  • As India’s import bill was high during first quarter of FY20, the CAD to GDP ratio had reached close to 3%.
  • However, as the trade deficit reduced gradually, the current account balance improved to 0.51% of GDP in Q3 and then 0.1% in Q4.
  • Improved in trade surplus in services also helped in reducing current account deficit.
  • On the service side, trade surplus in telecommunication and IT services has increased by average 8% to $86 billion in FY20.
  • We believe that weak domestic currency, lower oil price, and India’s effort to lower import bills especially with China will help in maintaining lower current account deficit.
  • Considering these factors, we are expecting the CAD to GDP ratio at a lower level of 0.5% in FY21.
  • From currency management perspective, a lower current account deficit will give more room for RBI in controlling volatility in exchange rate.