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The finance ministry pegs the current account deficit (CAD) at 3.7 per cent of gross domestic product (GDP) for the current financial year, but a survey by the Federation of Indian Chambers of Commerce and Industry (Ficci) projected it to be four per cent. This is high since many analysts peg the CAD at less than that forecast by the ministry.
Respondents to the survey expected CAD to witness an improvement in the second half of the financial year, after widening to 4.9 per cent of GDP in the first quarter.
Most analysts believe CAD would be lower than $70 billion or 3.7 per cent of the GDP projected by the ministry for the current financial year compared with $88 billion or 4.8 per cent in 2012-13.
Also, the trade deficit, part of CAD, fell to the lowest in two-and-a-half years at $6.76 billion in September. Taking a cue from these numbers, YES Bank analysis had on Wednesday pegged the CAD at $60 billion for 2013-14.
As if to strike a balance between the ministry and independent analysts, projections for growth, median forecast of respondents to the Ficci survey, came at five per cent for 2013-14. Median forecast roughly means that half the respondents pegged it at over five per cent and half below that.
The ministry has projected the growth above five per cent and most independent analysts at less than that.
Projections by respondents to the survey is a downward revision from the earlier median projection of six per cent growth shown by the previous round of the Ficci Economic Outlook Survey.
The Prime Minister's Economic Advisory Council had also cut its forecasts to 5.3 per cent from its earlier estimates of 6.4 per cent for 2013-14. The Asian Development Bank too had lowered the country’s growth forecast to 4.7 per cent from six per cent for FY14. On the other hand, the International Monetary Fund had pegged economic growth at 4.25 per cent for 2013-14 due to weak growth in the manufacturing and services sectors.
The survey results also indicate that inflation risks have resurfaced and the participating economists expect headline inflation rate to be 6.0 per cent by March 2014- end. Elevated food prices and the sharp fall in the rupee’s value continue to put pressure on prices.
Further, expectations with regard to performance of the industrial sector have also taken a hit. The participating economists expect Index of Industrial Production to grow by 1.7% in FY14; this is half of the 3.5% growth that was projected in the previous round of the survey.
According to majority of the economists participated in the survey, the overall economic situation in the country continues to remain weak. Though some positive developments like good monsoons, better performance of agricultural sector, improvement in exports and clearances granted to infrastructure projects make the case for recovery a little stronger, it will still take some more time to witness any firm signs of a turn around.
With regard to outlook on the exchange rate, participating economists felt that Rupee is expected to remain weak in immediate future before recovering modestly. It is expected to remain in the range of 62-65 against the US dollar in near term. The expectation of reduced foreign capital inflows and still high (though moderating) current account deficit has shaped this view on the Rupee movement.
The respondents indicated that non-performing assets would go up across a wide array of sectors, which include iron and steel, textiles, power generation, automobiles and ancillaries, telecommunication, aviation, construction, real estate, infrastructure, steel and cement.
