Current account deficit drops to $5.5 bn

TAKING THE PULSE OF INDIA'S FINANCIAL HEALTH

India's current account deficit during July-September 2007 narrowed to $5.5 billion from $6.3 billion a year earlier. A near doubling of remittances by non-resident Indians (NRIs) kept the current account deficit in check despite a widening of the trade deficit. The country's current account deficit accounts for roughly 0.5 per cent of gross domestic product (GDP).

The trade deficit increased to $21.7 billion in the second quarter of the current financial year as against $16.8 billion a year earlier, said the Reserve Bank of India (RBI) in its data on India's balance of payments developments during July-September this year. The increase in trade deficit followed a slowdown in export growth and a rise in non-oil imports.

Invisible receipts rose by 29.1 per cent in the September quarter against 30.6 per cent in the corresponding quarter last year. The rise was mainly due to continued momentum in remittances from overseas Indians and on account of software services, travel earnings and other professional services.

Net invisibles were higher by 54.5 per cent at $16.19 billion during July-September 2007, against $10.48 billion a year earlier, primarily on account of a sharp acceleration in private transfers.

Net private transfer receipts, mainly comprising remittances from Indians working overseas, showed an increase to $10.08 billion in the period against $5.37 billion in the corresponding period last year.

"Overseas Indians are bringing more money into the country to take advantage of the difference in interest rates prevailing in the global and the domestic market. With global central banks, especially the US Fed, cutting key rates, Indian interest rates offer better returns," said a senior official of a public sector bank.

"In addition, the appreciation of the rupee against the US dollar also benefits overseas Indians. When they think of converting funds into dollars again, they may get more dollars for less amount of Indian currency," the official added.

Net earnings from software services stood at $7.2 billion for the second quarter of 2007-08 as against $6.7 billion a year earlier.

India's capital account surplus widened to $33.9 billion during the quarter from $8.7 billion a year earlier. Net portfolio investment stood at $10.9 billion against $2.2 billion in the previous year.

Net accretion to foreign exchange reserves on a build-operate-transfer basis, excluding valuation, was significantly higher at $29.2 billion in the second quarter of 2007-08, against $2.27 billion a year earlier. This was led by strong capital inflows.