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India's trade deficit for the current financial year is likely to be contained at $156 billion, resulting in the current account deficit coming in at $42 billion, Citigroup said.
The current account deficit (CAD), the difference between outflow and inflow of foreign exchange, would be about 2.3% of GDP due to the fall in gold and non-essential imports, the financial services major said in a report.
"For the current fiscal year (FY14), we expect the trade deficit to be contained at $156 billion vs $194 billion in FY13," Citigroup said.
According to official figures, India's exports grew 3.49% in December to $26.3 billion, while imports dipped 15.25% to $36.4 billion. The fall in imports was largely on account of a decline in gold and silver shipments.
The trade deficit for December stood at $10.1 billion.
Gold and silver imports in the April-December period declined 30.3% to $27.3 billion from $39.2 billion a year earlier. The government and the Reserve Bank of India had taken steps last year to curb gold imports in a bid to contain the CAD.
The government and the RBI expect the CAD to be below $56 billion in the current financial year compared with a record $88.2 billion, or 4.8% of GDP, last fiscal.
For the April-December period, exports aggregated $230.3 billion and imports $340.3 billion, while the trade deficit stood at $110 billion.
"Going forward, taking into account sequential trends of lower exports and bottoming out of imports, we maintain our estimate of the deficit narrowing to $156 billion," according to the report.
On the rupee, Citigroup said though the impact of the US Federal Reserve's tapering has been muted so far, a continued uptick in US treasury yields could put some pressure on currencies such as the local currency.
However, the narrowing of the CAD to below 3% of GDP and high foreign-exchange reserves would provide structural strength to the rupee against broad emerging market volatility.
"We maintain our view of the USD/INR likely to trade in the Rs 60-63 range in the next few months," Citigroup said.
The rupee is currently hovering around the 61/$level.
