Global financial services major HSBC on Friday lowered India's current account deficit (CAD) forecast for this financial year to 3.4% of GDP from 4.1% earlier.
HSBC said the country's CAD is at an unsustainable level, and expected to gradually decline in the coming years and in 2014-15, it is likely to be at 3.2% of GDP.
"We expect the CAD to narrow to around $62 billion in this fiscal (as against $88 billion in FY13), around 3.4% of GDP. This compares to our previous forecast of $73 billion (4.1% of GDP)," HSBC said in a research note.
HSBC's CAD projections factored the increase in imports during the festive season and rise in coal imports to help meet demand from power plants in the coming months.
In the next fiscal year, FY15, we expect the deficit to hold broadly steady in nominal terms and decline to 3.2% of GDP.
CAD, the difference between inflow and outflow of foreign exchange, had declined to 3.6% in the January-March quarter after touching a record high of 6.5% in the October-December quarter.
The Government plans to bring down CAD to 3.7% or USD 70 billion in the 2013-14 fiscal, from 4.8% or USD 88.2 billion in 2012-13.
HSBC said CAD has narrowed notably in recent months mainly driven by government steps to curb imports, especially gold. Moreover, the softening in domestic demand has dampened imports and helped contain the deficit.
"Encouragingly, the trade deficit has narrowed in recent months, led by slower domestic demand, a weaker currency and policy steps to curb imports. These factors should help narrow the CAD this and next year," HSBC said.
The report further noted that it is important to keep macroeconomic policies tight and step up the implementation of structural reform to further reduce vulnerabilities ahead of Fed tapering and make the CAD sustainable over the medium term.