Citi cuts India current account deficit forecast to below 3% of GDP

CITIGROUP lowered its projection for India’s current account deficit (CAD) to 2.9 per cent of gross domestic product (GDP) for the current fiscal year, citing the growth in the country’s service exports and a lower oil price forecast.

The brokerage had, in August last year, said it expected India’s CAD to be as high as 3.9 per cent of GDP for the fiscal year ending March 2023.

“The key surprise came from the phenomenal growth in services exports in the first half of the current fiscal year, which goes beyond just software services,” Samiran Chakraborty, chief economist for India at Citi, said in a note.

Net exports of services rose 35 per cent to US$34.5 billion in the second quarter of the current fiscal.

Citi also revised its CAD forecast for fiscal 2023-24 to 2.2 per cent of GDP, from 2.4 per cent earlier.

“The current downward revision in our CAD forecast is led by Citi’s lower oil price view,” Chakraborty said.

“Oil prices have fallen sharply over the last two months towards the mid-US$80/barrel level and are likely to remain subdued over the next year”

The fall in oil prices would likely offset weaker export growth, keeping the average monthly goods trade balance at around US$23.5 billion in the next fiscal year, Citi estimates.

Expected fall in oil prices could weigh down CAD by 0.9 per cent in the 2023-24 fiscal year, Chakraborty said.

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On the exchange rate, Citi expects USD/INR to remain around 83 in the near term and to move to 79-80 in the second half of 2023, driven by a more decisive turn in the US dollar cycle. REUTERS