India's balance of payments slips into deficit on dollar outflows

By Neha Dasgupta and Suvashree Choudhury

MUMBAI (Reuters) - India's balance of payments slipped into deficit in the third quarter for the first time in nearly two years, as foreign investors turned net sellers of Indian financial assets in anticipation of December's U.S. rate hike.

The account of India's monetary transactions with the rest of the world turned to a deficit of $0.9 billion in July-September from surplus of $11.4 billion in April-June, central bank data showed on Tuesday. It hit a record surplus of $30.1 billion between January and March.

In 2013, India posted a record high current account deficit of 4.8 percent of gross domestic product as unease about a prior planned Federal Reserve policy tightening - scaling back its asset purchase programme - pummelled emerging markets.

Economists said they expect any gap to be far more manageable this time than the crisis levels it reached then.

Tuesday's data showed the third quarter current account deficit was $8.2 billion, or 1.6 percent of gross domestic product, widening from 1.2 percent in the previous quarter as exports slowed sharply.

The trade deficit for the quarter expanded to $37.4 billion from $34.2 billion a quarter ago.

"As some part of the uncertainty on the U.S. rates is taken care of, in the allocation of funds, India stands to gain compared to other emerging markets," said Shubhada Rao, chief economist at Yes Bank in Mumbai.

"As a ratio, we are still looking at a manageable current account deficit of 1.1-1.2 percent for (this) year."

After being buyers of Indian shares and bonds in October, foreign investors turned sellers and since November have pulled out $2.85 billion, though they remain net buyers for the year. In the July-Sept quarter, outflows totalled around $2.8 billion.

Analysts still expect a balance of payments surplus for the year, though some are reining in their expectations.

"BoP surplus is likely to be around $25 billion, less than half of the surplus seen in 2014/15," said A. Prasanna, economist, ICICI Securities Primary Dealership Ltd in Mumbai.

(Additional reporting by Swati Bhat; editing by John Stonestreet)