Rating agency ICRA on Tuesday said the current account deficit will decline to 4.5 per cent this fiscal, from around 5 per cent last fiscal, following the likely dip in gold imports as well as lower crude prices.
The agency also forecast economic growth to recover mildly to 5.8 - 6 per cent in 2013-14 from around 5 per cent in 2012-13.
The agency says its benign expectations are based on the incentives announced by the government which will provide a limited boost to non-oil, non-jewellery exports, import of capital goods will remain subdued in the first half pending a pick-up in investment activities and lower crude prices will dampen growth of oil imports.
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ICRA expects that GDP at factor cost improved to 5 per cent in Q4 from 4.5 per cent in Q3 of FY13, reflecting a slight improvement in growth of services and agriculture.
Also, lead indicators of the services sector suggest a small uptick in growth in Q4. Merchandise and service sector exports expanded by a healthy 8.9 per cent and 9.4 per cent, respectively, in Q4.
Moreover, a 9 per cent rise in government’s revenue expenditure in January-February 2013 against relative to 1 per cent de-growth in Q3, is likely to have boosted growth of community, social and personal services.
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However, the report warns that given the large gap, funding of current account deficit in FY14 is likely to remain a key concern for RBI, as macroeconomic and political uncertainties may result in sporadic portfolio outflows and FDI inflows may not record a broad-based pick-up until after general elections.
Another likely pain area could be a fall in remittances, which on the back of deregulation of interest rates on NRE and NRO accounts by the RBI in December 2011 had contributed to a surge in inflows in FY13. But additional NRI deposits are expected to moderate in FY14 in line with a likely softening of domestic deposit rates.