Capital inflows likely to turn positive in Q4FY09: CMIE

Capital flows into the country are likely to turn positive in the March quarter of FY09, an economic think-tank forcecast in its report.        

"We expect the capital account of the Balance of Payments (BoP) of the country to experience a net flow of $3,740-million in the March 2009 quarter as against an outflow of $3,683-million in the December 2008 quarter," Centre for Monitoring Indian Economy (CMIE) said in its monthly report on the state of the Indian economy.        

Along with a higher net flow, the report also projected that the foreign direct investment into the country would continue to surge, with Q4 of the previous fiscal expected to record an inflow of $3,900-million on this account, CMIE said.        

According to the report, the official BoP data for the December quarter of the last fiscal showed an outflow of $3.7-billion.        

It was for the first time in the last one decade that the capital acccount of the BoPs of the country showed an outflow on net basis, it said.        

"However, we believe that this phenomenon will not repeat itself in the March 2009 quarter," CMIE said in its report.

The expectation was based on the fact that the biggest reason for the much-higher-than-expected outflow in December quarter was the unusually high, nearly $6-billion ouflows by way of bank capital (excluding NRIs deposits), CMIE said.        

The global liquidity crisis had resulted in international branches of Indian banks running short of funds and they, consequently, buying dollars locally and sending them overseas to their branches, the report said.        

At the same time, foreign banks in India too had repatriated funds thereby contributing to outflow of bank capital, the CMIE report said.        

The $3.1-billion outflow on account of suppliers credit was another reason for the heavy outflow on the capital account in the December quarter, CMIE said, adding, "we expect some outflow to continue on both these accounts, but the magnitude is expected to be much less."        

"Similarly, we also expect outflow on the portfolio investments accounts to be much lower at $350-million in the March quarter as against a whopping $5,820-million in the December 2008 quarter," CMIE said.