BoP data show revival in capital flows

Current account deficit widens slightly to $12-bn in Dec quarter; decline in invisibles continues.

Despite a lower trade gap, the country’s current account deficit widened to $12.03 billion (Rs 55,380 crore) during the third quarter of the current financial year ended December 2009, from $11.67 billion (Rs 52,500 crore) in October-December 2008, mainly due to lower invisibles’ receipts.

However, the deficit was lower than the $12.63 billion (Rs 56,800 crore) recorded in the September 2009 quarter.

The latest balance of payments data, released by the Reserve Bank of India (RBI) today, showed a surplus of $13.8 billion (Rs 62,000 crore) during the third quarter of the current financial year, as against a deficit of $6.21 billion (Rs 28,000 crore) a year earlier. This was mainly on account of portfolio investments. Net foreign direct investment inflows also improved ($3.9 billion versus $0.4 billion). During the third quarter, net external commercial borrowings were, however, lower at $1.5 billion, as against $3.8 billion last year.

With the surplus in the capital account exceeding the current account deficit, there was a net accretion to foreign exchange reserves of $1.8 billion during October-December 2009 compared to a decline of $17.9 billion in the previous year.

During the nine months ended December 2009, the capital account surplus widened to $43.2 billion during April-December 2009 from $5.8 billion during April-December 2008. During the period, the current account deficit widened to $30.3 billion, compared to $27.5 billion in April-December 2008.

The decline in invisibles’ receipts, which started in the last quarter of 2008-09, continued during the December 2009 quarter. It declined by 3.1 per cent to $39.9 billion despite an increase in private transfers or remittances by individuals and higher software exports. While software exports went up by 15.3 per cent to $13 billion, private transfers rose by 24.18 per cent to $13.30 billion. But, these could not compensate for the 12.3 per cent decline in services’ exports.

Invisibles’ payments grew 12.9 per cent to $21.18 billion during the third quarter. At $18.7 billion, the invisibles’ surplus in the third quarter was lower than the corresponding quarter in the preceding year. As a result, despite a lower trade deficit, the current account deficit was higher at $12.03 billion in the third quarter of 2009-10.

“There are signs of revival as far as capital flows are concerned, especially on the debt side. However, the trade deficit is still high, software receipts are yet to pick up and remittances are still not very strong. So, as long as trade deficit is high, it is difficult for the current account deficit to come down,” said Anubhuti Sahay, an economist at Standard Chartered Bank.