India likely to record current account deficit of USD16bn in FY15-16

India recorded December goods trade deficit of USD11.7bn in December, as compared with Barclays forecast of USD10.2bn. There was a slight rebound in exports and imports, with exports declining 14.8% y/y and imports falling by 3.9% y/y in December. Oil imports declined 33%, while petrochemical exports also fell sharply. Non-oil non gold imports declined 1.9% in December, recovering from a decline of 22% in November. Capital goods and electronic goods are expected to have increased non-commodity imports, on par with growing public investment.

"Despite the negative surprise on the trade deficit, we think India's underlying external position remains strong", says Barclays.

India's trade deficit for FY15-16 stands at USD99.2bn, as compared with the FY14-15 deficit of USD111.7bn. Decline in oil prices has helped in the rebound of trade balance. India's services trade surplus continues to be strong at USD6.3bn in November. For H1 FY15-16, India recorded current account deficit of USD14.3bn, and is likely to rebound in H2 with the help of lower oil prices.

"We recently lowered our current account deficit forecasts for India, and now expect a smaller deficit of USD16bn in FY15-16 (0.8% of GDP) and a USD21bn (0.9%) deficit in FY16-17 on account of lower oil prices", says Barclays.