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The net capital inflows to India are likely to increase sharply in FY15, buoyed by the historic victory of the BJP-led NDA headed by Prime Minister Narendra Modi, says a Nomura report.
According to the global financial services firm, this historic victory has enthused investor confidence that the government will pursue reforms and policies that will put India back on high growth trajectory over the medium term.
"We expect a $25 billion balance of payments surplus in FY15," Nomura said in a research note.
According to the report, the import bill is likely to rise slightly on gradual relaxation in gold import restrictions and the non-gold import bill may also rise slightly as growth picks up in the latter half of FY15.
The rise in import bill will be offset by strong exports on the back of higher global demand, it said.
"Overall, we expect the current account deficit (CAD) to remain within sustainable levels, under 2% of GDP in FY'15," the report said.
According to RBI data released yesterday, in FY14, CAD narrowed to 1.7% of GDP, or $32.4 billion, from 4.7%, or $87.8 billion, in the previous fiscal.
The decline in the deficit continues to be driven by lower gold imports and softer non-oil, non-gold demand, which helped contain the merchandise trade deficit, experts said.
British brokerage firm Barclays also believes that given the government's measures to restrict gold imports largely remain in place, we do not think the current account deficit will widen significantly in the first half of FY15.
CAD is expected to be lower than the earlier forecast of $50 billion (2.4% of GDP) in FY'15.
India's current account deficit narrowed sharply to $1.2 billion, or 0.2% of GDP, in Q4 of FY'14 from $18.1 billion, or 3.6% of GDP, a year ago. In the December quarter, it stood at $4.2 billion or 0.9% of GDP.
The lower CAD was primarily on account of a decline in trade deficit as imports fell sharper than exports.
