India's CAD likely to drop in Q3

The country's current account deficit is likely to decline to 1.1-1.2 per cent of the gross domestic product in the third quarter, say rating agencies. 

"We expect the current account deficit (CAD) to decline to 1.1 per cent of GDP in 3Q FY14 based on the trade deficit of $10.1 billion in December 2013," India Ratings and Research (Ind-Ra) said in a report.

CAD is the excess of forex outflows over inflows. India's exports grew 3.49 per cent in December to $26.3 billion, while imports dipped 15.25 per cent which helped narrow the trade deficit to $10.1 billion compared with $17.5 billion in the same period of 2012.

Overall, trade deficit for Q3 FY14 (October to December 2013) stood at $29.9 billion which was at the same level as in Q2 FY14.

"Given this, and with service export growth in Q3 expected to be at least similar to that in the second quarter, the current account deficit is likely to remain close to the level seen in Q2 FY14 which was 1.2 per cent of GDP," rating agency Crisil said.

For the April-December period, exports aggregated $230.3 billion and imports $340.3 billion while the trade deficit stood at $110 billion.

India Rating, however, said it is likely to revise its exports, imports and CAD numbers for FY14, given the 5.9 per cent growth in exports and 6.5 per cent contraction in imports during the first three quarters of FY14.