Balance of payments

BALANCE OF PAYMENT
India's foreign exchange reserves stand at  $267.71 billion as on July 24, 2009
Shrinking foreign trade

INDIA’s trade deficit during the first three months of current fiscal year (2009-10) on a balance of payments (BoP) basis was large due to the steeper decline in the pace of exports than that of imports The trade deficit on a BoP basis in Q1 (US$ 26.0 billion) was, however, less than that in Q1 of 2008-09 (US$ 31.4 billion). This is revealed in e report of the country’s central banking authority Reserve Bank of India (RBI) on India's Balance of Payments Developments during the first quarter (April-June) of 2009-10.

The key features of India’s BoP that emerged in Q1 of fiscal 2009-10 were:(i) The decline in exports which started since October 2008 continued during the first quarter of 2009-10. Import payments, on a BoP basis, also continued its declining trend mainly due to lower oil import bill; (ii) Private transfer receipts remained buoyant and increased by 9.4 per cent to US$ 13.3 billion during Q1 of 2009-10. Exports of software services, however, declined during Q1 of 2009-10; (iii) Despite net invisibles surplus at US$ 20.2 billion, the large trade deficit (US$ 26.0 billion) mainly on account of sharp decline in exports led to a current account deficit of US$ 5.8 billion in Q1 of 2009-10 (US$ 9.0 billion during Q1 of 2008-09); (iv) With the revival in capital inflows to India, particularly foreign investments, the capital account showed a turnaround from a negative balance in last two quarters of 2008-09 to a positive balance of US$ 6.7 billion during Q1 of 2009-10; (v) Portfolio investment witnessed a sharp turnaround from net outflows of US$ 2.7 billion in Q4 of 2008-09 to net inflows of US$ 8.3 billion during Q1 of 2009-10; (vi) NRI deposits also witnessed higher inflows reflecting the positive impact of the revisions in the ceiling interest rate on NRI deposits; (vii) There was a marginal increase in reserves on BoP basis (i.e., excluding valuation) during Q1 of 2009-10. However, the foreign exchange reserves including valuation increased by US$ 13.2 billion during Q1 of 2009-10 implying that the increase in reserves during this period was mainly due to valuation gains as the US dollar has depreciated against major currencies.

  

Major Items of India's Balance of Payments (US$ million)
	(2007-08) (PR)	(2008-09) (P)	April-June (2008-09) (PR)	April-June (2009-10) (P)
Exports	166163	175184	49120	38789
Imports	257789	294587	80545	64775
Trade Balance	-91626	-119403	-31425	-25986
Invisibles, net	74592	89587	22406	20179
Current Account Balance	-17034	-29817	-9019	-5808
Capital Account*	109198	9737	11254	5923
Change in Reserves# (+ indicates increase;- indicates decrease)	-92164	20080	-2235	-115
Including errors & omissions; # On BoP basis excluding valuation; P: Preliminary, PR: Partially revised. R: revised
SOURCE: Reserve Bank of India Report

Invisibles

(i) During Q1 of 2009-10, invisibles receipts declined marginally, while invisibles payments recorded a positive growth . In net terms, the invisibles balance at US$ 20.2 billion was lower than that in the corresponding period of the previous year (US$ 22.4 billion), though higher than that in Q4 of 2008-09 (US$ 19.3 billion).

Invisibles Receipts

(i) Invisibles receipts registered a marginal decline of 0.7 per cent in Q1 of 2009-10 (as against a higher growth of 30.3 per cent in Q1 of 2008-09) on account of a decline in almost all categories of services except insurance and financial services and a decline of 20.3 per cent in investment income receipts.

(ii) Exports of software services declined by 11.5 per cent during Q1 of 2009-10 as against an increase of 37.6 per cent in Q1 of 2008-09.  According to the NASSCOM, software services exports are projected to grow by 4 to 7 per cent to US$ 48 to 50 billion during the financial year 2009-10.

(iii) Travel receipts at US$ 2.3 billion during Q1 of 2009-10 declined by 8.7 per cent as against an increase of 19.9 per cent in Q1 of 2008-09 reflecting a slowdown in tourist arrivals in the country since November 2008. According to the data released by the Ministry of Tourism, foreign tourist arrivals declined by 1.8 per cent in Q1 of 2009-10.

Invisibles Payments

(i) Invisibles payments recorded a positive growth of 11.9 per cent in Q1 of 2009-10 (13.5 per cent in Q1 of 2008-09) mainly due to growth in payments under services and income account. In the services account, however, payments under travel, transportation, G.N.I.E. and software services recorded a negative growth in Q1 of 2009-10. 

(ii) Investment income payments (include mainly the interest payments on commercial borrowings, external assistance and non-resident deposits, and reinvested earnings of the foreign direct investment (FDI) enterprises operating in India) increased marginally to US$ 4.4 billion during Q1 of 2009-10 (US$ 4.1 billion in Q1 of 2008-09) mainly due to increased reinvested earnings of FDI companies in India (Table 8).

Invisibles Balance
(iii) A combined effect of decline in invisibles receipts and increase in invisibles payments led to marginally lower net invisibles (invisibles receipts minus invisibles payments) at US$ 20.2 billion  in Q1 of 2009-10 than that in the corresponding period of the previous year (US$ 22.4 billion) (Table 3). At this level, however, the invisibles surplus financed about 77.7 per cent of trade deficit during Q1 of 2009-10 (71.3 per cent during Q1 of 2008-09).

Current Account Deficit

i) Despite net invisibles surplus, the large trade deficit mainly on account of sharp decline in exports led to a current account deficit of US$ 5.8 billion in Q1 of 2009-10 (US$ 9.0 billion during Q1 of 2008-09).

Capital Account and Reserves

i) The gross capital inflows to India revived during Q1 of 2009-10 as compared to the last two quarters of 2008-09 manifesting confidence in India’s long-term growth prospects. The gross inflows were, however, at US$ 78.5 billion as compared to US$ 90.9 billion in Q1 of 2008-09 mainly led by inflows under FIIs, FDI and NRI deposits. Gross capital outflows during Q1 of 2009-10 stood lower at US$ 71.8 billion as against US$ 79.7 billion in Q1 of 2008-09.
(ii) With the revival in capital inflows to India, particularly foreign investments, the capital account showed a turnaround from a negative balance in last two quarters of 2008-09 to a positive balance of US$ 6.7 billion during Q1 of 2009-10 (US$ 11.1 billion in Q1 of 2008-09).
(iv) Net FDI inflows (net inward FDI minus net outward FDI) amounted to US$ 6.8 billion in Q1 of 2009-10 (US$ 9.0 billion in Q1 of 2008-09). Net inward FDI stood at US$ 9.5 billion during Q1 of 2009-10 (US$ 11.9 billion in Q1 of 2008-09). Net outward FDI stood at US$ 2.6 billion in Q1 of 2009-10 as compared with US$ 2.9 billion in Q1 of 2008-09.
(v) During Q1 of 2009-10, FDI to India was channeled mainly into manufacturing sector (19.2 per cent), real estate activities (15.6 per cent), financial services (15.4 per cent), construction (12.2 per cent) and business services (11.7 per cent). Mauritius continued to be the major source of FDI during Q1 of 2009-10 with a share of 48.9 per cent followed by USA at 12.8 per cent.
(vi) Portfolio investment primarily comprising foreign institutional investors’ (FIIs) investments and American Depository Receipts (ADRs)/Global Depository Receipts (GDRs) witnessed a sharp turnaround from net outflows of US$ 2.7 billion in Q4 of 2008-09 to net inflows of US$ 8.3 billion during Q1 of 2009-10. During 2009-10, the sharp increase in FII inflows could be attributed to the recovery of domestic stock market in line with international stock markets, better corporate performance, political stability and comparatively better growth prospects.
(vii) The tightness in liquidity in the overseas markets continued during Q1 of 2009-10. The approvals of external commercial borrowings (ECBs) were very low in the first two months of 2009-10, however, it recovered during June 2009. In addition, repayments of ECBs were higher at US$ 2.1 billion during Q1 of 2009-10 (US$ 1.1 billion during Q1 of 2008-09) resulting in net outflows of US$ 0.4 billion under ECBs (inflows of US$ 1.5 billion in Q1 of 2008-09).
(viii) The gross disbursements of short-term trade credit was US$ 10.1 billion during Q1 of 2009-10 almost same in Q1 of 2008-09. The repayments of short-term trade credits, however, were very high at US$ 13.2 billion in Q1 of 2009-10 (US$ 7.8 billion in Q1 of 2008-09). As a result, there were net outflows of US$ 3.1 billion under short-term trade credit during Q1 of 2009-10 (inflows of US$ 2.4 billion in Q1 of 2008-09).
(ix) Banking capital mainly consists of foreign assets and liabilities of commercial banks. NRI deposits constitute major part of the foreign liabilities. Banking capital (net), including NRI deposits, were negative at US$ 3.4 billion during Q1 of 2009-10 as against a positive net inflow of US$ 2.7 billion during Q1 of 2008-09. Among the components of banking capital, NRI deposits witnessed higher inflows of US$ 1.8 billion in Q1 of 2009-10 (net inflows of US$ 0.8 billion in Q1 of 2008-09) reflecting the positive impact of the revisions in the ceiling interest rate on NRI deposits.
(x) Other capital includes leads and lags in exports, funds held abroad, advances received pending for issue of shares under FDI and other capital not included elsewhere (n.i.e.). Other capital recorded net outflows of US$ 1.6 billion in Q1 of 2009-10.

Balance of Payments (BoP)

Merchandise Trade

Exports
(i) The decline in exports which started since October 2008 continued during the first quarter of 2009-10. On a BoP basis, India’s merchandise exports recorded a decline of 21.0 per cent in Q1 of 2009-10 as against an increase of 43.0 per cent in Q1 of 2008-09.

(ii) As per the data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), merchandise exports declined by 26.4 per cent in Q1 of 2009-10 as against a higher growth of 37.4 per cent in Q1 of 2008-09, reflecting fall in demand worldwide due to the global economic crisis.

INDIA’s cumulative value of exports for the period April- August, 2009 was US$ 64129 million (Rs. 311715 crore) as against US $ 92959 million (Rs. 391841 crore) registering a negative growth of 31 per cent in Dollar terms and 20.4 per cent in Rupee terms over the same period last year. Cumulative value of imports for the period April- August 2009 was US$ 102300 million (Rs. 497108 crore) as against US$ 153691 million (Rs. 648041 crore) registering a negative growth of 33.4 per cent in Dollar terms and 23.3 per cent in Rupee terms over the same period last year. Oil imports during April- August, 2009 were valued at US$ 28275 million which was 47.4 per cent lower than the oil imports of US $ 53742 million in the corresponding period last year. Non-oil imports during April- August, 2009 were valued at US$ 74024 million which was 25.9 per cent lower than the level of such imports valued at US$99949 million in April- August, 2008. The trade deficit for April- August, 2009 was estimated at US $38171 million which was lower than the deficit of US $ 60732 million during April-August, 2008.   EXPORTS & IMPORTS (April-August, FY 2009-10)     In $ Million In Rs Crore Exports including re-exports 2008-09 92959 391841 2009-10 64129 311715 Growth 2009-10/2008-2009 (percent) -31.0 -20.4 Imports 2008-09 153691 648041 2009-10 102300 497108 Growth 2009-10/2008-2009 (percent) -33.4 -23.3 Trade Balance 2008-09 -60732 -256200 2009-10 -38171 -185393 Figures for 2008-09 and 2009-10 are provisional   The trade deficit for April- June, 2009 was estimated at $ 15504 million which was lower than the deficit at $ 28642 million during April- June, 2008. Source: Federal Ministry of Commerce, Government of India

Imports

(i) Import payments, on a BoP basis, also continued its declining trend. Imports declined by 19.6 per cent in Q1 of 2009-10 as against a positive growth of 42.9 per cent in Q1 of 2008-09.

(ii) According to the data released by the DGCI&S, the decline in imports is mainly attributed to the sharp fall in oil import payments due to lower crude oil prices during Q1 of 2009-10 (US$ 63.9 per barrel in Q1 of 2009-10 as against US$ 119 per barrel in Q1 of 2008-09). POL imports recorded a sharp decline of 56.9 per cent during Q1 of 2009-10 as against a sharp increase of 74.2 per cent during Q1 of 2008-09. As per the data released by the Ministry of Petroleum & Natural Gas, Government of India, POL imports showed a decline of 45.1 per cent during Q1 of 2009-10 despite a quantity growth of 10 per cent mainly due to lower crude oil price.

(iii) According to the DGCI&S data, out of the total decline in imports of US$ 26.7 billion in Q1 of 2009-10 over the corresponding previous quarter, oil imports declined by US$ 16.8 billion (share of 63.1 per cent in the decline in total imports during Q1 of 2009-10 as against 59.8 per cent share in total increase in imports during Q1 of 2008-09), while non-oil imports decreased by US$ 9.8 billion (share of 36.9 per cent in the decline in total imports  during Q1 of 2009-10 as against 40.2 per cent share in total increase in imports during Q1 of 2008-09).

Inflows & Outflows from NRI Deposits and Local Withdrawals (In $ million)
	Inflows	Outflows	Local Withdrawals
2006-07 (R)	19914	15593	13208
2007-08 (PR)	29401	29222	18919
2008-09 (P)	37,089	32,799	20,617
2008-09 (Q1) (PR)	9063	8249	5157
2009-10 (Q1) (P)	11172	9354	5568
P: Preliminary, PR: Partially revised. R: revised SOURCE: Reserve Bank of India report India's Balance of Payments Developments during the First Quarter (April-June 2009) of 2009-10

 Variation in Reserves
(i) The increase in foreign exchange reserves on a BoP basis (i.e., excluding valuation) was US$ 115 million in Q1 of 2009-10 (as against an accretion to reserves of US$ 2,235 million in Q1 of 2008-09) . However, the foreign exchange reserves including valuation increased by US$ 13.2 billion during Q1 of 2009-10 implying that the increase in reserves during this period was mainly due to valuation gains as the US dollar has depreciated against major currencies. [A Press Release on the sources of variation in foreign exchange reserves is separately issued]. (ii) At the end of June 2009, outstanding foreign exchange reserves stood at US$ 265.1 billion

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