The government does not seem keen on issuing fresh gold bonds given the overall cost and rising gold prices.
US President-elect Donald Trump's pledge to impose high tariffs on three of its trading partners, including China will provide huge export opportunities for India and the domestic industry should prepare itself to tap into that, Niti Aayog CEO BVR Subrahmanyam said on Wednesday. Trump last week vowed to introduce 25 per cent tariffs (or customs duty) on imports from Mexico and Canada and an additional 10 per cent on China.
The fiscal deficit, as per the survey, deteriorated to 5.8 per cent of the GDP as compared to 3.4 per cent for 2018-19 estimated in the interim Budget.
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.
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Analysts see FY16 CAD at 0.5-0.6% of GDP.
The sharp rally in the markets thus far in fiscal 2023-24 (FY24) has left analysts struggling to find investment-worthy themes. The S&P BSE Sensex has surged nearly 7 per cent thus far in FY24 and hit a fresh 52-week high of 63,601.71 levels on June 22, mostly led by foreign institutional (FII) flows. "The Indian market has seen a broad rally in the past few months but headline indices have seen more modest performance. "We are not very clear about the reasons for the rally and the divergent performance and struggle to find ideas in the consumption, investment and outsourcing sectors after the sharp run-up in several of our favored sectors and stocks in the past two months," wrote Sanjeev Prasad, co-head, Kotak Institutional Equities, in a recent co-authored note with Anindya Bhowmik and Sunita Baldawa.
Whether nominal or real, India's investment rate needs to increase by 3 to 4 percentage points of GDP to support 8 per cent real growth, recommends Nikhil Gupta.
The CAD has been narrowing since 2012 to an estimated 1.6% of GDP in 2014
A depreciating rupee, which briefly hit 80 to the dollar on Tuesday, may boost India's exports but price-inelastic imports of crude oil and gold would mean limited relief on the trade deficit, which clocked a record $26.2 billion in June. Due to global risk aversion on the back of geo-political tensions and aggressive policy tightening by the Fed, the dollar has appreciated against most currencies, including the rupee. And, with other currencies depreciating, India's comparative advantage in this respect may be limited.
The CAD occurs when a country's total imports of goods, services and transfers are more than total exports of goods, services and transfers.
Indian growth in the rest of this fiscal year and next will be propelled by robust domestic consumption as consumer confidence improves, and by investment, including large increases in government capital expenditure, according to the Asian Development Outlook September 2023. "As slowing exports could foment headwinds for the economy, and erratic rainfall patterns are likely to undermine agricultural output, the growth forecast for FY2023 is revised down marginally to 6.3 per cent," ADB said.
If there was one event that made the month of August stand out, it was a strengthening of the dollar index to levels last seen only 20 years ago, as the Federal Reserve dispelled all doubts about its intention to continue raising interest rates. Predictably, most currencies suffered against the US unit, with the bulk of the losers belonging to the emerging markets pack. Amid the volatility, the rupee, however, has displayed significant resilience and fared much better than most of its peer currencies.
BSE Oil & Gas, Healthcare and IT indices have surged by 3% each followed by counters like TECk, Banks, Realty, PSU, Power and Metal, all gaining between 1-2%.
Increase in gold imports pushed the country's trade deficit to a five-month high of $ 15.33 billion in April.
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The trade deficit stood at $6.54 billion in February this year.
The Barclays' report also said that the effort to reduce fiscal deficit through austerity measures is weighing on growth.
Finance Minister Arun Jaitley presented the Budget in Parliament on Saturday.
The World Bank on Tuesday raised the growth forecast for the Indian economy to 7 per cent for the current fiscal year on the back of recovery in agri sector and rural demand. World Bank had in June projected India to grow at 6.6 per cent for FY24. According to the World Bank Report released on Tuesday, India's growth continues to be strong despite a challenging global environment.
India's passion for gold has led to a rise in its current account deficit, which reached an all-time high of 5.4 percent of gross domestic product in the July-September quarter.
Sustained dollar demand from importers and banks amid weakness in the equity market and the firming dollar overseas mainly affected the rupee value against the dollar, a forex dealer said.
'... as has been happening in the last three weeks, then the foreign exchange reserves will not be comfortable to ensure that the rupee does not fall drastically.'
Govt cannot assume it will solve current account problem.
According to a RBS report, 'the impact on India's current account deficit should be significant, cumulatively amounting to 1.9 per cent of GDP' provided for the full year FY14 prices for both oil and gold remain at current levels and aggregate volume gold demand remains stable.
According to the global financial services major, the country's Current Account Deficit, which is the difference between the outflow and inflow of foreign currency, has the potential to 'surprise favourably'.
Only 21 tonnes of gold have been mobilised in the last eight years under the gold monetisation scheme (GMS) which was announced by the Government of India in November 2015. This could be considered as a failure as the scheme has undergone several changes with a revamped GMS announced in April 2021 to improve collections. This figure was released by the World Gold Council (WGC) on Wednesday in its report titled 'Gold Investment Market and Financialisation, in India gold market series'.
Gold imports fell to 19.3 tonnes in November from a high of 162 tonnes in May in the wake of a series of curbs by both the government and the Reserve Bank of India.
Rupee hit a record low on Monday, escalating worries about the country's current account deficit and complicating the task of the central bank as it tries to loosen monetary conditions to spur an economic recovery.
It's in the same boat as other emerging markets with current account deficits, but the recent capital-raising measures may help
In the absence of adequate foreign capital flows, it also raises questions about India's foreign exchange reserves buffer and its external vulnerability.
Indian and US officials will begin deliberations on the proposed bilateral trade agreement in Washington from Wednesday with an aim to iron out issues and give an impetus to the negotiations.
The currency is vulnerable because of a record high current account deficit.
Massive imports by India, of $60 billion and 1,067 tonnes in 2011-12 (up from $40 billion in 2010-11), have contributed in pushing prices of the noble metal to record levels internationally.
'If it doesn't, it will continue with measures to infuse liquidity, signalling a new cycle,' predicts Tamal Bandyopadhyay.
Forex dealers said besides selling of the American currency by banks and exporters, easing of norms by Reserve Bank for providing swaps to banks that are borrowing funds overseas and a higher opening in the domestic stock market also buoyed the sentiment.
The 3-month, 6-month and 12-month USD-rupee forecasts are 55, 53 and 52 respectively.
Moody's assigns a 'Baa3' rating on India, with a stable outlook.
The Indian economy's election-year syndrome cannot be ignored, says A K Bhattacharya.
The measures to reduce the current account deficit should have focused far more on narrowing the trade imbalance, principally through export facilitation and linked FDI, says Nitin Desai.
Are short-term compulsions increasing long-term instability?
India's current account deficit (CAD) may dip further in the March quarter of FY24 as pressure from the negative net exports during the January-March period eased to an 11-quarter high. A part of the gross domestic product (GDP) data, net export- which is usually negative for India - captures the difference between exports and imports of both goods and services, while the CAD data, released by the Reserve Bank of India (RBI), also factors in private transfer receipts.
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