India's July-Sept current account gap may hit record high

[sherlyk]

India's current deficit may soar to a record high in the September quarter on high non-oil imports after briefly narrowing in the June quarter, which could make the rupee susceptible to a sudden reversal in capital inflows, Nomura said.

Economists with Nomura said in a research note they expect the current account deficit to be at an all-time high of 4.9 percent of gross domestic product in July-September, surpassing its previous high of 4.5 percent in the March quarter.

However, in the April-June period, the current account deficit had narrowed to 3.9 percent of GDP at $16.55 billion.

Foreign investors who had pumped in about $12.6 billion in the March quarter turned cautious and dollar inflows came down during April-June following a deteriorating trade balance, slowing economic growth and an environment of policy inaction.

Since July, foreign investors have brought in $10.6 billion, of which about $8 billion came in after the new Finance Minister Palaniappan Chidambaram made a series of announcements to liberalise the economy and kick-start reforms.

"A surge in portfolio inflows due to recent reforms has ensured that net capital inflows are enough to finance the widening deficit," Nomura said.

"However, with the current account deficit at a record high, we worry the INR remains susceptible to a sudden reversal of flows and note that the recent real effective exchange rate appreciation could worsen the underlying imbalance."

The rupee rose to a near six-month high of 51.32 to the dollar earlier in October mainly on the back of reform moves by the government to give a fillip to growth. It, however, fell last week, posting its biggest weekly loss in three-and-half months, as the immediate impact of the reforms fade.


Keywords: India,Economists, Nomura ,domestic product,Foreign investors ,economic growth,environment ,policy inaction,Finance Minister, Palaniappan Chidambaram , INR,exchange rate ,business news

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