India’s current account deficit likely to remain stable at around 2% of GDP in coming years

In the beginning of 2016, India's trade deficit narrowed as the persistent slump in exports was countered by another drop in imports. The overall current account position is not expected to return as a vulnerability source in near future. India's monthly trade deficit for January reached $7.6bn, as compared with 11.7bn in December, the smallest monthly deficit since February 2015. The trade deficit is not expected to widen again, even if the exports outlook continues to remain weak.

Several factors look set to keep commodity imports in check. A slight rebound in global oil prices is expected in the coming years. However, even with the projection of an increase in the Brent crude price to $45pb by the end of 2016, it will not signify a surge in import values.

The government's gold schemes introduced in November should eventually assist at the margins to cut imports of the precious metal. There are certain doubts regarding the effectiveness of the Gold Monetisation Scheme. There are more positive prospects on the Sovereign Bond Gold Scheme. The scheme can cut gold imports by about $400mn per month. Gold imports are volatile; however, this will subtract a major chunk off the import bill. India's trade deficit is likely to be in check that will help to make sure that the overall current account position does not return as a major vulnerability any time soon.

"We are forecasting the current account deficit to remain stable at around 2% of GDP over the coming years", says Capital Economics.