QUICK TAKES: Balance of payments stays healthy

ECONOMIC SURVEY 2003-04/ EXTERNAL ACCOUNT

The economy has ended its third year with a positive balance of payments (BoP) on both current and capital accounts.

The surplus is consistent with what is happening in the rest of Asia and is the basic reason for the sustained rise in the country's foreign exchange reserves.

An analysis of the BoP numbers shows that the deficit in trade account is being made good by the large surplus in invisibles (remittances by Indians from abroad and earnings from the services sector) in the current account.

The Economic Survey has said that the growing strength of the capital account has arisen largely from the steady growth in non-debt creating foreign investment inflows.

For instance, the size of the invisible surplus has increased by almost 60 per cent between 2000-01 to 2002-03 to $17 billion.

In the same period, there has been a net outflow from the country through the external commercial borrowings and external assistance route.

India now has the distinction of being the largest recipient of remittances from abroad in the world. But simultaneously, the RBI has been moving in to kill the interest among the Non-Resident Indians to deposit funds in Non-Resident (External) Rupee Accounts.

In 2003-04, the Bank reduced the interest rate on these deposits to reduce the possibility of arbitrage between domestic and international rates of interests.