Sunday, June 22, 2014

IS INDIA SURPLUS CAD COUNTRY?


The current account of the country would have turned surplus of 4.6 per cent of the GDP in FY14 without energy imports, says a report. "In FY14, the net energy imports of the country were 6.3 per cent of GDP. Without energy imports, it would have run a current account surplus of 4.6 per cent of GDP (instead of the 1.7 per cent deficit)," Goldman Sachs said in a report. The current account deficit narrowed to 1.7 per cent of GDP, or USD 32.4 billion, in FY14 from a record high of 4.7 per cent or USD 87.8 billion in FY13. The report forecasts the rise in country's net energy imports to USD 230 billion by FY23 from USD 120 billion in FY14, as the ongoing Iraqi crisis has jacked crude prices by over 6 per cent already. "From 2017 onwards, we expect the country to enter a more energy-intensive phase of growth, driven by greater industrialisation, electrification and urbanisation; and we think its demand for energy will increase more rapidly than in the previous decade," the report said. The report, however, said that even with a large energy elasticity of demand, energy imports as a share of GDP may have peaked already. "Our projections show the share of energy imports declining very gradually to 4.9 per cent of GDP from 6.3 per cent of GDP currently. This is despite our energy demand projections being higher than other agencies," it said. The report further said the primary driver of drop in energy imports could be on account of moderation in oil prices. Oil comprises 80 per cent of energy imports and stagnant oil prices have a large impact on the energy bill.
The report said the country's domestic supply of energy can increase only gradually, keeping in view environmental constraints and the availability of natural resources. The country's proven oil and gas reserves are small. In oil, it has only 0.3 per cent of global reserves compared to a consumption share of 4.2 per cent while in gas, it has 0.7 per cent of reserves compared to a consumption share of 1.6 per cent. The report said that since the world is switching to gas, the country also needs to make that shift. "Our estimates show that if India were to increase its share of gas from 9 per cent currently to 16 per cent by FY23, it could save USD 8 billion annually by FY23," the report said.

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