Higher trade deficit, lower capital inflows affect BoP.
The country’s current account deficit widened to $10.72 billion during the first quarter of 2008-09 compared with $6.3 billion during April-June last year as higher oil prices pushed up the import bill and resulted in a higher trade deficit.
The current account deficit was estimated at $1.04 billion in January-March. In addition, the surplus on capital account shrunk to $12.96 billion in April-June this year from $17.50 billion in the corresponding period last year due to stock market volatility and lower capital inflows.
| YAWNING GAP India's Balance of Payments in April-June | ||
|
In $ mn | ||
2007-08(PR)
2008-09(P)
-indicated increase
#: On BoP basis excluding valuation.
P: Preliminay PR: Partially Revised
Net capital inflows fell 23.70 per cent to $13.2 billion during the first quarter this year as foreign institutional investors (FIIs) withdrew $5.18 billion from the country during the first quarter.
However, net foreign direct investment (FDI) inflows rose over three-and-a-half times to $10.12 billion compared with $2.66 billion during the first quarter of 2007-08.
As a result of higher current account deficit and a smaller capital account surplus, the balance of payments (BoP) surplus in the April-June quarter was estimated at $2.24 billion, compared to $11.20 billion during the corresponding period last year, according to the latest data released by the Reserve Bank of India on Tuesday.
During January-March 2007-08, it was estimated at $24.99 billion.
The current account deficit widened as the trade deficit, which rose from $20.70 billion during April-June 2007 to $31.54 billion during the first quarter this year, more than offset the gains made on invisibles comprising software export earnings, earnings from non-software services and private transfers including remittances.
The increase in invisible receipts was driven by private transfers along with the steady growth in software services exports, travel and transportation. The remittances from Indians working overseas rose nearly 54 per cent to $12 billion against $7.8 billion last year. Software exports rose 20.59 per cent to $10.66 billion during April-June this year, compared with $8.84 billion in the corresponding period last year.
Non-software services, however, saw a 6.87 per cent rise in receipts to $5.91 billion in April-June this year, as against $5.53 billion in the same period last year.
The invisible payments slowed down during the period due to moderation in payments relating to a number of business and professional services. Due to the surge in international crude oil prices followed by rising freight rates, transportation payments went up by 33.1 per cent against 24.8 per cent in the corresponding period last year.
India’s external debt at the end of June 2008 rose to $221.3 billion, up by $584 million from March 2008.
The net accretion to the foreign exchange reserves excluding valuation change stood at $2.2 billion on BoP basis in the first quarter on account of capital outflows. The forex reserves rose $2.4 billion during the first quarter of 2008-09 as against an increase of $14.2 billion in the corresponding period last year.
Analysts such as Rajeev Malik of Macquarie Securities expect the current deficit to widen this year. “The bigger challenge will be for capital inflows, especially in the current global backdrop, and we expect a significant shrinkage in the overall surplus on the balance of payments,” he said.
