INDIA Balance of Payments

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INDIAS BALANCE OF PAYMENTS

The balance of payments of a country can be defined as asystematic statement of all economic transaction of a country with

rest of the world during a period of time usually one year.

Shrinking foreign trade

INDIAs trade deficit during the first nine months of fiscal 2009-10 on a balance of payments (BoP) basis was lower at US$

89.51 bn compared with US$ 98.44 bn during the same periodin fiscal 2008-09. The trade deficit on a BoP basis in Q3 (US$30.72 billion) was, however, less than that in Q3 of 2008-09(US$ 34.04 billion). This is revealed in e report (India'sBalance of Payments Developments during the first quarter(October-December) of 2009-10) of the countrys centralbanking authority Reserve Bank of India (RBI).

The key features of Indias BoP that emerged in Q3 of fiscal2009-10 were:(i) Exports recorded a growth of 13.2 per centduring Q3 of 2009-10 over the corresponding quarter of theprevious year, after consecutive declines in the last fourquarters.(ii) Imports registered a growth of 2.6 per cent in Q3 of2009-10 after recording consecutive declines in the last threequarters.(iii) Private transfer receipts remained robust during Q3of 2009-10.(iv) Despite low trade deficit, the current accountdeficit was higher at US$ 12.0 billion during Q3 of 2009-10

mainly due to lower invisibles surplus.(v) The current accountdeficit during April-December 2009 was higher at US$ 30.3billion as compared to US$ 27.5 billion during April-December2008.(vi) Surplus in capital account increased sharply to US$43.2 billion during April-December 2009 (US$ 5.8 billion duringApril-December 2008) mainly on account of large inflows under


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FDI, Portfolio investment, NRI deposits and commercialloans.(vii) As the surplus in capital account exceeded thecurrent account deficit, there was a net accretion to foreignexchange reserves of US$ 11.3 billion during April-December

2009 (as against a drawdown of US$ 20.4 billion during April-December 2008).

Major Items of India's Balance of Payments(US$ million)

(2007-08)(PR)

(2008-09) (P)April-

December(2008-09) (PR)

April-December

(2009-10) (P)

Exports 166163 175184 150520 124473

Imports 257789 294587 248967 213988

Trade Balance -91626 -119403 -98446 -89515

Invisibles, net 74592 89587 70931 59185

Current AccountBalance

-17034 -29817 -27516 -30330

Capital Account* 109198 9737 7136 41630

Change inReserves#(+ indicatesincrease;- indicatesdecrease)

-92164 20080 20380 -11330

Including errors & omissions; # On BoP basis excluding valuation; P: Preliminary,PR: Partially revised. R: revised

SOURCE: Reserve Bank of India Report

Invisibles

The decline in invisibles receipts, which started in the Q4 of2008-09, continued during Q3 of 2009-10. Invisibles receipts


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registered a decline of 3.1 per cent during the quarter (asagainst an increase of 5.4 per cent in Q3 of 2008-09) mainly onaccount of decline in business, communication and financialservices, and investment income receipts. Although, software

exports recorded a robust growth of 15.3 per cent, servicesexports as a whole witnessed a decline of 12.3 per cent duringthe quarter as against an increase of 11.8 per cent during thecorresponding quarter of 2008-09.

Invisible receipts recorded a decline of 7.7 per cent during April-December 2009, as compared with an increase of 22.2 per centin the corresponding period of the previous year, mainly due to

the lower receipts under almost all components of servicescoupled with lower investment income receipts.

Invisibles Payments

Invisibles payments recorded a growth of 12.9 per cent duringQ3 of 2009-10, as compared with a low growth of 2.4 per centin Q3 of 2008-09, mainly led by increase in payments underalmost all components of services.

Invisibles payments witnessed a positive growth of 3.7 per centin April-December 2009 (10.4 per cent in April-December 2008)mainly supported by higher business, communication andfinancial services, and increase in payments under investmentincome account.

Invisibles Balance

Size of invisibles surplus in Q3 of 2009-10 was, however, lowerthan Q3 of preceding year. Therefore, despite low trade deficit,the current account deficit was higher at US$ 12.0 billion in Q3of 2009-10 (US$ 11.7 billion in Q3 of 2008-09).


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Net invisibles (invisibles receipts minus invisibles payments)stood at US$ 59.2 billion during April-December 2009 ascompared with US$ 70.9 billion during April-December 2008. Atthis level, the invisibles surplus financed 66.1 per cent of trade

deficit during April-December 2009 as against 72.0 per centduring April-December 2008.

Current Account Deficit

Net invisibles (invisibles receipts minus invisibles payments)stood at US$ 59.2 billion during April-December 2009 ascompared with US$ 70.9 billion during April-December 2008. Atthis level, the invisibles surplus financed 66.1 per cent of tradedeficit during April-December 2009 as against 72.0 per centduring April-December 2008.

Net capital flows at US$ 43.2 billion in April-December 2009was much higher as compared with US$ 5.8 billion in April-December 2008 mainly due to larger inflows under FDI,portfolio investments and NRI deposits

Due to lower outward FDI, the net FDI (inward FDI minusoutward FDI) was higher at US$ 16.5 billion in April-December2009 as compared with US$ 14.3 billion in April-December2008.

Portfolio investment witnessed large net inflows of US$ 23.6billion during April-December 2009 as against a net outflow ofUS$ 11.3 billion in April-December 2008 due to large net FIIinflows of US$ 20.5 billion.

Net external commercial borrowings (ECBs) inflow sloweddown to US$ 2.3 billion in April-December 2009 (US$ 6.9 billionin April-December 2008) mainly due to increased repayments.


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The increase in foreign exchange reserves on BoP basis (i.e.,excluding valuation) was US$ 11.3 billion in April-December2009 (as against a sharp decline in reserves of US$ 20.4 billionin April-December 2008). [A Press Release on the Sources of

Variation in Foreign Exchange Reserves is separately issued].

The gross disbursements of short-term trade credit was US$10.1 billion during Q1 of 2009-10 almost same in Q1 of 2008-09. The repayments of short-term trade credits, however, werevery high at US$ 13.2 billion in Q1 of 2009-10 (US$ 7.8 billion inQ1 of 2008-09). As a result, there were net outflows of US$ 3.1billion under short-term trade credit during Q1 of 2009-10

(inflows of US$ 2.4 billion in Q1 of 2008-09)

Banking capital mainly consists of foreign assets and liabilitiesof commercial banks. NRI deposits constitute major part of theforeign liabilities. Banking capital (net), including NRI deposits,were negative at US$ 3.4 billion during Q1 of 2009-10 asagainst a positive net inflow of US$ 2.7 billion during Q1 of2008-09. Among the components of banking capital, NRIdeposits witnessed higher inflows of US$ 1.8 billion in Q1 of2009-10 (net inflows of US$ 0.8 billion in Q1 of 2008-09)reflecting the positive impact of the revisions in the ceilinginterest rate on NRI deposits.

Other capital includes leads and lags in exports, funds heldabroad, advances received pending for issue of shares underFDI and other capital not included elsewhere (n.i.e.). Othercapital recorded net outflows of US$ 1.6 billion in Q1 of 2009-

10.

Balance of Payments (BoP)

Merchandise TradeExports


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On a BoP basis, Indias merchandise exports posted a declineof 17.3 per cent in April-December 2009 (as against a highgrowth of 27.5 per cent in the corresponding period of the

previous year).

INDIA's cumulative value of exports for the first 11 months offiscal 2009-10 (April-2009 to February-2010) stood at US $152983 million (Rs 727345 crore) as against US $ 172379million (Rs. 774585 crore) registering a negative growth of11.3 per cent in Dollar terms and 6.1 per cent in Rupee terms

over the same period last year. Country's cumulative value ofimports for the period April, 2009- February, 2010 was US $248401 million (Rs. 1180124 crore) as against US $ 287099million (Rs. 1289412 crore) registering a negative growth of13.5 per cent in Dollar terms and 8.5 per cent in Rupee termsover the same period last year.

Oil imports during this 11-month period were valued at US$73230 million which was 18.2 per cent lower than the oil

imports of US $ 89492 million in the corresponding period lastyear. Non-oil imports during April, 2009- February, 2010 werevalued at US$ 175171 million which was 11.4 per cent lowerthan the level of such imports valued at US$ 197607 million inApril 2008- February, 2009.

EXPORTS & IM

PORTS (April-February, FY 2009-10)

In $ Million In RsCroreExports including re-exports2008-09 172379 7745852009-10 152983 727345


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Growth 2009-10/2008-2009(percent)

-11.3 -6.1

Imports

2008-09 287099 12894122009-10 248401 1180124Growth 2009-10/2008-2009(percent)

-13.5 -8.5

Trade Balance2008-09 -114721 -5148272009-10 -95418 -452779

Figures for 2008-09 are the latest revised whereasfigures for 2009-10 are provisional

The trade deficit for April 2009- February, 2010 was estimatedat US $ 95418 million which was lower than the deficit of US $114721 million during April 2008 -February, 2009.

Source: Federal Ministry of Commerce, Government ofIndia

Imports

Import payments, on a BoP basis, also remained lowerrecording a decline of 14.0 per cent during April-December

2009 as compared with a high growth of 35.6 per cent in thecorresponding period of the previous year.

According to the DGCI&S data, exports declined by 17.3 percent, and imports growth was negative at 22.0 per cent led bythe decline in both oil imports (a decline of 29.7 per cent) and


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non-oil imports (a decline of 18.4 per cent) during April-December 2009.

On a BoP basis, the merchandise trade deficit decreased to

US$ 89.5 billion during April-December 2009 from US$ 98.4billion in April-December 2008 mainly on account of both loweroil and non-oil import payments

Inflows & Outflows from NRI Deposits and LocalWithdrawals(In $ million)

Inflows OutflowsLocal

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 51572009-10 (Q1)(P)

11172 9354 5568

P: Preliminary, PR: Partially revised. R: revised

SOURCE: Reserve Bank of India report India's Balance ofPayments Developments during the First Quarter (April-June 2009) of 2009-10

Variation in Reserves


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During April-December 2009, there was an accretion to foreignexchange reserves mainly on account of valuation gains. Also,inflows under foreign investments, Non-Resident Indiandeposits and short-term trade credits have contributed

significantly to the increase in foreign exchange reserves duringApril-December 2009.

On balance of payments basis (i.e., excluding valuation effects),the foreign exchange reserves increased by US$ 11,300 millionduring April-December 2009 as against a decline of US$ 20,380million during April-December 2008. The valuation gains,reflecting the depreciation of the US dollar against the major

currencies, accounted for US$ 20,185 million during April-December 2009 as compared with a valuation loss of US$33,375 million during April-December 2008. Accordingly,valuation gains during April-December 2009 accounted for 64.1per cent of the total increase in foreign exchange reserves.

KEY INDICATORS OF INDIA'S BALANCE OF PAYMENTS

2007-08 2008-092008-09 (Q1)

(PR)2009-10 (Q1)

(P)

Merchandize Trade

Exports ($ on BoP basis) Growth Rate(percent)

28.9 5.4 43.0 -21.0

Imports ($ on BoP basis) Growth Rate(percent)

35.2 14.3 42.9 -19.6

Crude Oil Prices, Per Barrel (IndianBasket)

79.2 82.4 118.8 63.9

Trade Balance ($ billion) -91.6 -119.4 -31.4 -26.0

Invisibles

Net Invisibles ($ Billion)

74.6

89.6

22.4

20.2

Net Invisibles Surplus/Trade Deficit(Percent)

81.4 75.0 71.3 77.7

Invisible Receipts/Current Receipts(Percent)

47.2 48.1 44.2 49.9

Services Receipts/Current Receipts(Percent)

28.6 30.0 26.2 28.9

Private Transfers/Current Receipts(Percent)

13.8 13.7 13.8 17.2


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Current Account

Current Receipts ($ Billion) 314.8 337.7 88.1 77.5

Current Payments ($ Billion) 331.8 367.6 97.1 83.3

Current Account Balance ($ Billion) -17.0 -29.8 -9.0 -5.8

Capital Account

Gross Capital Inflows ($ Billion) 433.0 302.5 90.9 78.5

Gross Capital Outflows ($ Billion) 325.0 293.3 79.7 71.8

Net Capital Flows ($ Billion) 108.0 9.1 11.1 6.7

Net FDI/Net Capital Flows (Percent) 14.3 191.3 80.5 101.4

Net Portfolio Investment/Net capitalFlows (Percent)

27.4 -153.4 -37.8 122.7

Net ECBs/Net capital Flows (Percent) 21.0 89.2 13.2 -5.3

Reserves

Import Cover of Reserves (In months) 14.4 10.3 13.3 11.4

Outstanding Reserves as at end period ($Billion)

309.7 252.0 312.1 265.1

SOURCE: Reserve Bank of India reportIndia's Balance of Payments Developments during the First Quarter

(April-June 2009) of 2009-10

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India's Merchandize Trade (2003-04 to 2008-09 )

Year

Exports

Growth (Percent)

Imports

Growth (Percent)

2003-04 63.8 - 78.1 -

2004-05 83.5 30.8 111.5 42.7

2005-06 103.1 23.4 149.2 33.8

2006-07 126.3 22.5 185.6 24.4

2007-08 162.9 29.0 251.4 35.5

2008-09 (April-

March) -5.4 - 14.3

SOURCE: Federal Ministry of Commerce, Government of India

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October2009

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INDIA Balance of Payments