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India's economic woes are far from over

January 13, 2014 17:47 IST

India's economic woes far from over

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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, the difference between outflow and inflow of foreign exchange, would be about 2.3 per cent of gross domestic product because of 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.

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Image: Labourers unload goods from a trailer at a port in Kolkata January 10, 2014.
Photographs: Rupak De Chowdhuri/Reuters

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India's economic woes far from over

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According to official figures, India's exports grew 3.49 per cent in December to $26.3 billion, while imports dipped 15.25 per cent 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 per cent 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.

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Image: Labourers eat during a break from their work at the site of a commercial building under construction in Noida.
Photographs: Anindito Mukherjee/Reuters

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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 per cent 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.

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Image: Vendors waits for customers at their stalls at a wholesale food market in Mumbai December 16, 2013.
Photographs: Danish Siddiqui/Reuters
Tags: CAD , GDP , RBI , India

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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 per cent 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/USD level.


Photographs: Reuters

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