Current account deficit widens further in second quarter

India’s current account deficit widened to $12.54 billion during the second quarter of the current financial year, as against $4.29 billion in July-September 2007.

The deficit at the end of the first quarter of the current financial year was estimated at $9.79 billion.

The higher current account deficit during the second quarter of the year was mainly due to a higher trade deficit caused by a steep rise in the import bill, while export growth slowed down.

Latest data released by the Reserve Bank of India today showed that the import growth was on account of a 45 per cent increase in oil imports, partly due to the increase in crude oil prices. Non-oil imports rose 37.6 per cent as Indian companies spent more on shipping capital goods, chemicals and fertiliser into the country.

 

While merchandise exports grew 24.6 per cent, during July-September this year, software services exports, which forms part of invisibles receipts, recorded a 54 per cent rise to reach $26.1 billion, as against $16.9 billion during the corresponding period last year.

What also helped the net invisible receipts was the steady flow of remittances from overseas, with net transfers rising 53 per cent to $14.23 billion.

There was also higher realisation from business and professional services, travel and transportation. But the quarter also saw an increase in payments due to outbound travel, transportation, domestic demand for business-related services and interest payments and dividends.

On the capital account, the impact of the global credit crisis was visible with net capital inflows estimated at $8.17 billion during July-September 2008, compared with $33.16 in the corresponding period last year.

Within this segment, foreign direct investment (FDI) inflows more than doubled to $5.56 billion. But portfolio investment saw an outflow of $1.3 billion in contrast with inflows of $10.9 billion during the second quarter of last year as institutional investors pulled out money from the Indian stock markets after the credit crisis intensified in the US and Europe.

The global liquidity crunch and restrictions on accessing external commercial borrowings saw inflows through this route shrink to $1.86 billion during July-September this year from $6.27 billion in the corresponding period last year. The crisis also took a toll on short-term trade credits, which fell to $776 million in the second quarter this year, from $4.63 billion during July-September 2007.

As a result, the capital account balance was estimated at $7.80 billion for the quarter-ended September 2008, compared with $33.53 billion in the second quarter of 2007-08.

On a balance of payments basis, reserves fell by $4.73 billion in the second quarter this year, as against an increase of $29.24 billion during July-September 2008.