The nation?s current account deficit during the Q2 2008-09 has shot up as higher crude oil prices and a weakening currency increased the country?s import bill.
The Reserve Bank of India which released the balance of payments data on Wednesday revealed that despite higher net invisible surplus mainly emanating from private transfers and software exports, the widening trade deficit, mainly due to higher imports led to higher current account deficit at $12.5 bn during the second quarter of July-September 2008-09 as against $4.3 bn in the corresponding period of 2007-08.
Import payments, registered 45% growth in the second quarter of 2008-09 as compared to an increase of 22.2% in the corresponding period of 2007-08. According to the data released by the The Directorate General of Commercial Intelligence and Statistics (DGCI&S), both oil imports and non-oil imports during July-September were significantly higher by 45.1%, as against 11.3% in 2007-08. Oil imports accounted for about 33.2% of total imports in the second quarter, as against 32% in 2007-08. The major drivers of non-oil imports were capital goods, chemicals and fertilisers. Meanwhile, consequent upon the relatively higher growth in imports than exports, trade deficit was higher at $38.6 bn in the second quarter as against $21.2 bn, same time last year.
Invisible receipts, comprising services, current transfers and income, rose by 33.9% in the second quarter as against 36.8% last year, mainly due to increase in receipts under private transfers along with steady growth in software services exports, business and professional services, travel and transportation. Reflecting the impact of global financial turmoil, gross capital inflows to India showed moderation, while the gross capital outflows remained steady during July-September 2008 as compared with the corresponding period of the previous year.
The gross capital inflows to India during July-September 2008-09 amounted to $85.7 bn, as against $95 bn last year, as against gross outflows from India at $77.5 bn, compared to $61.9 bn in the second quarter of 2007-08. Due to considerable volatile movement of capital flows, the net capital flows were significantly lower at $8.2 bn than that of $33.2 bn in 2007-08. In the context of the foreign direct investment, RBI data shows the net FDI flows were higher at $5.6 bn in July-September, 2008-09 as compared to $2.1 bn recorded in the corresponding period of the last year.
Net inward FDI remained buoyant at $8.8 bn during the period as against $4.7 bn in 2007-08, reflecting relatively strong fundamentals of Indian economy . Net outward FDI amounted to $3.2 bn in the second quarter as against $2.6 bn in 2007-08. The central bank revealed that the foreign exchange reserves have declined by $23,387 m during April-September 2008, including the valuation effects, as compared to an increase of $48,583 m during April-September 2007.
On a BoP basis, excluding valuation effects, the decline in the foreign exchange reserves was $2,499 m during April-September 2008. Valuation loss, reflecting the depreciation of major currencies against the dollar, accounted for $20,888 m in total reserves during April-September 2008 as against a valuation gain of $8,147 m during the corresponding period of previous year.
The valuation loss explained 89.3% of decline in reserves during April-September 2008. Apart from current account deficits, outflows under FIIs were the other major sources contributing to declining foreign exchange reserves during April-September 2008.