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Developments in India's Balance of Payments during the Second Quarter (July-September 2010) and Partially Revised data for First Quarter (April-June 2010) of 2010-11

January 5, 2011
  • Contents

Preliminary data on India's balance of payments (BoP) for the second quarter (Q2) - July-September 2010 of the financial year 2010-11, are now available. These preliminary data and the partially revised data for the first quarter (Q1) i.e., April-June 2010, have been taken into account for compiling the BoP data for the first half of the current financial year, i.e., April-September 2010. The data for past two years have also been revised. The details of these data are set out in the standard format of BoP presentation in Statements I and II.

Major Highlights of BoP during July-September (Q2) of 2010-11

      i.        On a BoP basis, exports recorded a growth of 25.0 per cent, year-on-year, during Q2 of 2010-11 as against a decline of 19.1 per cent during corresponding quarter of 2009-10.

     ii.        Similarly, on a BoP basis, imports registered a growth of 22.8 per cent, year-on-year, during the quarter as against a decline of 21.3 per cent during same quarter last year.

    iii.        Despite higher growth in exports relative to imports, in absolute terms the trade deficit widened to US$ 35.4 billion as compared to US$ 29.6 billion during corresponding quarter last year.

    iv.        Services receipts recorded a growth of 39.6 per cent, on a year-on-year basis, led by travel, transportation, software, business and financial services. During the corresponding quarter of last year, services receipts had declined by 26.3 per cent.

     v.        Services payments increased by 40.7 per cent to US$ 19.3 billion during the quarter from US$ 13.7 billion in corresponding quarter of last year 

    vi.        Private transfer receipts declined by 5.0 per cent to US$ 13.5 billion during the quarter.

   vii.        Consequently, net invisibles receipts declined by 3.9 per cent to US$ 19.6 billion.

  viii.        The higher trade deficit combined with the lower invisibles surplus resulted in the widening of current account deficit.

    ix.        The capital account surplus increased over the corresponding quarter of last year, mainly due to portfolio investments, short-term credit and external commercial borrowings (ECBs). Net inflows under FDI witnessed significant moderation during the second quarter compared to the corresponding quarter of last year.

     x.        With capital account surplus being higher than the current account deficit, the overall balance was in surplus at US$ 3.3 billion, which resulted in a net accretion to foreign exchange reserves of equivalent amount during the Q2 of 2010-11.

Major Highlights of BoP during April-September (H1) of 2010-11

      i.        During April-September 2010, the current account deficit widened reflecting higher trade deficit combined with lower net invisibles surplus.

     ii.        Although net foreign investments were largely of the similar order, net capital inflows increased significantly mainly due to short-term trade credits and ECBs.

    iii.        Despite significant increase in net capital inflows, accretion to reserves during April-September 2010 was lower mainly due to more than doubling of current account deficit over April-September 2009.

1. Balance of Payments for July-September  (Q2) of 2010-11

The major items of the BoP for the second quarter (Q2) of 2010-11 are set out below in Table 1.

Table 1 : Major Items of India's Balance of Payments

 (US $ billion)

Item

April-June

July-September

2009-10 (PR)

2010-11 (PR)

2009-10 (PR)

2010-11 (P)

1

2

3

4

5

1. Exports

39.2

56.3

43.4

54.3

2. Imports

65.4

87.8

73.0

89.6

3. Trade Balance (1-2)

-26.3

-31.6

-29.6

-35.4

4. Invisibles, net

22.1

19.4

20.4

19.6

5. Current Account Balance (3+4)

-4.2

-12.1

-9.2

-15.8

6. Capital Account Balance*

4.3

15.9

18.6

19.0

7. Change in Reserves# 
(-Indicates increase;+ indicates decrease)

-0.1

-3.7

-9.4

-3.3

 *: Including errors and omissions.           #: On BoP basis (i.e., excluding valuation).
P: Preliminary.      PR: Partially Revised.

(i) On a BoP basis, India's merchandise exports recorded a growth of 25.0 per cent, year-on-year, during Q2 of 2010-11 as against a decline of 19.1 per cent in the same quarter last year.

(ii) On a BoP basis, merchandise imports registered a growth of 22.8 per cent as against a decline of 21.3 per cent last year. 

(iii) Notwithstanding higher growth in exports relative to imports, the trade deficit in absolute terms was higher at US$ 35.4 billion in Q2 of 2010-11 as compared with US$ 29.6 billion during Q2 of 2009-10.

(iv) Invisibles receipts recorded a growth of 12.2 per cent (as against a decline of 13.7 per cent last year) mainly led by services exports.

(v) Services exports registered a growth of 39.6 per cent (as against a decline of 26.3 per cent a year ago) led by travel and transportation as well as miscellaneous services such as software, business and financial services. 

(vi) Private transfer receipts declined by 5.0 per cent (as compared with the growth of 3.6 per cent a year ago) to US$ 13.5 billion during the quarter (Table 2).

(vii) Investment income receipts declined significantly by 62.0 per cent during the quarter (as against an increase of 17.9 per cent a year ago) mainly due to persistence of lower interest rates abroad.

(viii) Invisibles payments recorded a growth of 28.5 per cent (as against a marginal increase a year ago) mainly due to higher payments under travel, transportation, business and financial services.

Table 2 : Invisibles Gross Receipts and Payments

(US$ billion)

Item

Invisibles Receipts

Invisibles Payments

April-June

July-September

April-June

July-September

2009-10 (PR)

2010-11 ( P)

2009-10 (PR)

2010-11
( P)

2009-10 (PR)

2010-11 ( P)

2009-10 (PR)

2010-11 
( P)

1

2

3

4

5

6

7

8

9

A. Services (1 to 5)

22.4

25.9

21.4

29.8

11.0

17.0

13.7

19.3

1.Travel

2.3

3.0

2.7

3.4

2.0

2.3

2.4

2.8

2.Transportation

2.5

3.1

2.6

3.3

2.8

3.1

2.2

3.5

3.Insurance

0.4

0.4

0.4

0.4

0.3

0.3

0.3

0.4

4.Govt. not included
 elsewhere

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.2

5.Miscellaneous

17.1

19.3

15.6

22.6

5.7

11.1

8.7

12.4

   Of Which: 

 

 

 

 

 

 

 

 

           Software

11.0

12.7

11.2

12.8

0.4

0.6

0.4

0.6

       Non-Software

6.1

6.6

4.4

9.8

5.3

10.5

8.3

11.8

B. Transfers

13.3

13.8

14.4

13.7

0.5

0.7

0.6

0.7

      Private

13.3

13.7

14.2

13.5

0.4

0.6

0.5

0.5

      Official

0.0

0.1

0.2

0.1

0.1

0.1

0.1

0.1

C. Income

3.0

2.9

4.8

2.0

5.2

5.5

5.8

5.9

        Investment  Income

2.7

2.6

4.5

1.7

4.8

5.0

5.5

5.5

      Compensation of
      Employees

0.2

0.2

0.2

0.2

0.4

0.5

0.3

0.4

Invisibles (A+B+C)

38.7

42.5

40.5

45.4

16.6

23.1

20.1

25.8

P: Preliminary.                             PR: Partially Revised.

(ix) As growth in invisibles payments was higher than the growth in receipts, net invisibles (invisibles receipts minus invisibles payments) recorded a moderate decline of 3.9 per cent to US$ 19.6 billion during the quarter (US$ 20.4 billion during Q2 of 2009-10).

(x) The lower size of invisibles surplus coupled with a higher trade deficit resulted in an increase in current account deficit to US$ 15.8 billion (US$ 9.2 billion a year ago).

(xi) The large inflows under FII investments along with steady inflows under short-term credit and external commercial borrowings resulted in a net capital account surplus of US$ 20.5 billion during Q2 of 2010-11 as compared with a surplus of US$ 19.3 billion during Q2 of 2009-10.

(xii) Short-term trade credit to India recorded net inflows of US$ 2.6 billion during the quarter (as compared with a net inflow of US$ 1.2 billion last year) in line with increase in imports associated with strong domestic economic activity. 

(xiii) Net ECBs were significantly higher at US$ 3.7 billion during the quarter (as compared with US$ 1.2 billion last year) mainly due to higher disbursements of commercial loans to India.

(xiv) Banking capital recorded net outflows of US$ 3.2 billion during the quarter (as against net inflows of US$ 4.4 billion last year) mainly due to build up of foreign assets of commercial banks.

(xv) Net FDI flows (net inward FDI minus net outward FDI) amounted to US$ 2.5 billion during the quarter (almost a third of the level in Q2 of 2009-10) mainly due to lower net inward FDI during the quarter.

(xvi) The deceleration in FDI to India was mainly on account of lower FDI inflows under construction, real estate, business and financial services. Country-wise, there was significant decline in FDI from Mauritius and Singapore.  

(xvii) Net inflows under portfolio investments almost doubled to US$ 19.2 billion during the quarter (US$ 9.7 billion during the same quarter last year), mainly due to large inflows under FIIs on the back of attractive returns in the Indian stock markets (Table 3).

(xviii) Despite higher net capital inflows, increase in foreign exchange reserves on BoP basis (i.e., excluding valuation) was lower at US$ 3.3 billion during Q2 of 2010-11 (as compared with accretion of US$ 9.4 billion during Q2 of 2009-10) due to larger current account deficits. In nominal terms (i.e., including valuation changes), foreign exchange reserves increased by US$ 17.2 billion during the quarter reflecting depreciation of US dollar against major international currencies during the quarter [A Press Release on the Sources of Variation in Foreign Exchange Reserves is separately issued].

Table 3 : Net Capital Flows

(US $ billion) 

Item

April-June

July-September

2009-10 (PR)

2010-11 (PR)

2009-10 (PR)

2010-11 (P)

1

2

3

4

5

1. Foreign Direct Investment

4.8

2.8

7.5

2.5

          Inward FDI

8.9

5.9

10.9

6.7

          Outward FDI

-4.1

-3.1

-3.4

-4.2

2. Portfolio Investment

8.3

4.6

9.7

19.2

        Of which:

 

 

 

 

              FIIs

8.2

3.5

7.0

18.8

              ADR/GDRs

0.0

1.1

2.7

0.5

3. External Assistance

0.3

2.4

0.7

0.6

4. External Commercial Borrowings

-0.5

2.3

1.2

3.7

5.  NRI Deposits

1.8

1.1

1.0

1.0

6.  Banking Capital excluding NRI Deposits

-5.2

2.9

3.4

-4.2

7.  Short-term Trade Credits

-1.3

4.2

1.2

2.6

8.  Rupee Debt Service

0.0

0.0

0.0

0.0

9.  Other Capital

-4.6

-4.1

-5.4

-4.9

Total   (1 to 9)

3.7

16.2

19.3

20.5

P: Preliminary.                             PR: Partially Revised.

2. Balance of Payments for April-September  (H1) of 2010-11

      i.        On BoP basis, the trade deficits widened to US$ 66.9 billion during April-September 2010 (US$ 55.9 billion during April-September 2009). It was mainly due to significant increase in imports in line with robust domestic economic performance.

     ii.        Net invisibles surplus, however, were lower at US$ 39.1 billion during April-September 2010 (US$ 42.5 billion last year) essentially due to higher invisibles payments under almost all major categories of services and decline in gross investment income receipts by about US$ 3 billion.

    iii.        The higher trade deficit combined with lower net invisibles surplus resulted in the widening of the current account deficit to US$ 27.9 billion during April-September 2010 (US$ 13.3 billion last year).

    iv.        Net capital inflows increased significantly during April-September 2010 mainly due to FII inflows, short-term trade credits and ECBs. The large increase in these inflows was considerably offset by the moderation in net FDI inflows to India.

     v.        Notwithstanding significant increase in net capital inflows, accretion to reserves during April-September 2010 was lower mainly due to more than doubling of current account deficit over April-September 2009.

Table 4 : Major Items of India's Balance of Payments

 (US $ billion)

Item

April-March

April-September

2008-09 (R)

2009-10 (PR)

2009-10 (PR)

2010-11 (P)

1

2

3

4

5

1. Exports

189.0

182.2

82.6

110.5

2. Imports

308.5

300.6

138.4

177.5

3. Trade Balance (1-2)

-119.5

-118.4

-55.9

-66.9

4. Invisibles, net

91.6

80.0

42.5

39.1

5. Current Account Balance (3+4)

-27.9

-38.4

-13.3

-27.9

6. Capital Account Balance*

7.8

51.8

22.9

34.9

7. Change in Reserves# 
(-Indicates increase;+ indicates decrease)

20.1

-13.4

-9.5

-7.0

 *: Including errors and omissions.           #: On BoP basis (i.e., excluding valuation).
R: Revised.       P: Preliminary.      PR: Partially Revised.

3. External Debt for the Quarter ending September 2010

As per the existing practice, the external debt for the quarters ending March and June are compiled and released by the Reserve Bank of India, while the external debt for quarters ending September and December are compiled and released by the Ministry of Finance, Government of India. Accordingly, the data on external debt for the quarter ending September 2010 are being released by the Ministry of Finance, Government of India. The same could be accessed at http://finmin.nic.in

Alpana Killawala
Chief General Manager

 

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