The Economic Times cited Nomura is a leading financial services group as saying that India's current deficit may soar to a record high in the September quarter on high non oil imports after briefly narrowing in the June quarter, which could make the rupee susceptible to a sudden reversal in capital inflows.

Economists with Nomura in a research said that they expect the current account deficit to be at an all-time high of 4.9% of gross domestic product in July to September, surpassing its previous high of 4.5% in the March quarter.

However, in the April to June period, the current account deficit had narrowed to 3.9% of GDP at USD 16.55 billion.

Foreign investors who had pumped in about USD 12.6 billion in the March quarter turned cautious and dollar inflows came down during April to June following a deteriorating trade balance, slowing economic growth and an environment of policy inaction.

Since July, foreign investors have brought in USD 10.6 billion of which about USD 8 billion came in after Mr Palaniappan Chidambaram new Finance Minister made a series of announcements to liberalize the economy and kick start reforms.

Nomura said that "A surge in portfolio inflows due to recent reforms has ensured that net capital inflows are enough to finance the widening deficit."

"Nomura further added that however, with the current account deficit at a record high, we worry the INR remains susceptible to a sudden reversal of flows and note that the recent real effective exchange rate appreciation could worsen the underlying imbalance.

Source - The Economic Times

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