India's balance of payments to turn positive in FY10: Goldman

Global financial firm Goldman Sachs today said it expects India's basic balance of payments (BoP) to turn positive in the fiscal 2009-10 on anticipations of narrowing of current account deficit and higher inflows.

"Notwithstanding the weakness in trade credit and foreign portfolio inflows, we expect the basic balance of payments (BoP) to move to positive in FY10," Goldman Sachs economists Pranjul Bhandari and Tushar Poddar said in a note today.

BoP includes current account balance (the widest measure of trade in good and services), foreign direct investment (FDI) and portfolio investment.

"In FY10, we expect the current account deficit to narrow sharply. We also expect FDI inflows, non-resident Indians (NRI) deposits, and external commercial borrowings (ECB) to remain relatively robust," the economists said in the note.

Goldman Sachs further said the turning of BoP into positive will have a strengthening effect on the Indian currency over a 6 to 12-month horizon. It expects the rupee to appreciate to 48 a dollar in 6 months and to 46.9 a dollar in 12 months.

"India's balance of payments may have had its worst quarter in October-December FY09, when it showed a deficit of $18 billion," Bhandari said.

On wholesale price index (WPI) inflation, Goldman said, "We expect inflation data to go into negative territory in April."