India's current account is likely to swing to surplus after 32 quarters of deficit in the January-March period, and will halve to 0.6 per cent of GDP in the next financial year starting April 1, says HSBC.
According to the global brokerage firm, of all the macro variables benefiting from lower oil prices, the current account balance is likely to gain the most.
“We are expecting to see a current account surplus in the January to March quarter after 32 consecutive quarters of deficit,” HSBC economists Pranjul Bhandari and Prithviraj Srinivas said in a research note.
The deficit is likely to halve to 0.6 per cent of GDP in 2015-16 and remain at manageable levels the year after as the oil import bill is drastically reduced, they said.
Crude prices have more than halved between June 2014 and January 2015, reflecting higher-than-expected oil and shale gas production in the US and lower demand in emerging markets coupled with OPEs refusal to lower output.
In the December quarter alone crude prices have fallen around 60 per cent.
HSBC has pared its oil price expectation to just over USD 60/barrel for end-2015, gradually rising to USD 68/barrel by the end of 2016. This could have a benign impact across India's macro economy, ranging from an improved growth outlook and lower inflation, to healthier fiscal accounts.
CAD, the difference between the inflow and outflow of foreign exchange, was 1.7 per cent of GDP (USD 32.4 billion) in 2013-14. It was at a record high of 4.7 per cent (USD 88 billion) in 2012-13.
In the April-September period of the current fiscal, it stood at 1.9 per cent (USD 17.9 billion), down from 3.1 per cent (USD 26.9 billion) in the same period in 2013-14.
The report said there can be some negative implications from the drop in oil prices too. For example, if the decline in oil prices is due to weaker global growth outlook, like in 2009, the impact from weaker exports could partially offset the positive influence on the domestic economy.
As India's growth is largely driven by domestic sources with oil as key input, declines in oil prices are usually a net positive. But, considering the delay in capex cycle recovery, HSBC has lowered its GDP growth projection.
“We now see GDP growth at 5.3 per cent in FY15 (5.5 per cent earlier), 6.3 per cent in FY16 (6.5 per cent earlier) and 6.8 per cent in FY17 (7.1 per cent earlier),” it said.
