Preliminary data on India’s balance of payments (BoP) for the second quarter (Q2) of the financial year 2006-07 i.e., July-September 2006, are now available. These preliminary data, combined with the partially revised data for the first quarter (Q1) i.e., April-June 2006, provide an assessment of the BoP for the first half of the current financial year i.e., April-September 2006. Full details of BoP data are set out in the standard format of presentation in Statement 1.

The major items of the BoP for Q2 of 2006-07 are set out in Table 1 below.

• Strong oil import demand led to a steady expansion in trade deficit, on BoP basis, to US $ 17.9 billion in Q2 of 2006-07 (US $ 13.2 billion in Q2 of 2005-06).

• Maintaining the pace of growth in business and professional services and remittances, invisible receipts recorded robust growth (32.8 per cent) in Q2 of 2006-07.
• Steady expansion in invisible payments reflected continuing pace of outbound tourist traffic from India, rising payments towards transportation, and strong domestic demand for business related services and higher investment income payments.

• Despite support from invisible surplus at US $ 11.0 billion, current account deficit widened to US $ 6.9 billion in Q2 of 2006-07 (US $ 3.6 billion in Q2 of 2005-06) due to large trade deficit mainly on account of oil imports.

• Under net capital inflows, the major contributors were foreign direct investment, FIIs, and NRI deposits.
• Accretion to foreign exchange reserves (excluding valuation) at US $ 2.3 billion in Q2 of 2006-07 was lower than US $ 5.3 billion in Q2 of 2005-06.

Taking into account the partially revised data for Q1 of 2006-07 and the preliminary data for Q2 of 2006-07, the BoP position for the first half of the financial year 2006-07 has been worked out. While the detailed data are set out in the table in standard format of presentation, the major items are set out in Table 2.

Trade Deficit

• With the growth in imports outstripping the pace of export growth, merchandise trade deficit, on a BoP basis, sharply increased to US $ 35.1 billion from US $ 27.1 billion in April-September 2005 (Chart 2).

• Invisible receipts rose by 28.6 per cent mainly due to steady growth in transportation, software exports, other professional and business services and remittances from overseas Indians (Table 3 and Chart 3).

• Private transfers, comprising primarily remittances from Indians working overseas, remained steady at US $ 11.2 billion in April-September 2006 as compared with US $ 10.5 billion in April-September 2005.

• Invisible payments also grew sharply (39.8 per cent) on account of surge in outbound tourist traffic, business services such as business and management consultancy, engineering and other technical services and dividend and profit payouts.
• The miscellaneous receipts, net of software, were recorded at US $ 14.4 billion in April-September 2006 (US $ 9.5 billion in April-September 2005). The break up is presented in Table 4.
• Business services receipts and payments both were mainly driven by trade related services, business and management consultancy services, architectural, engineering and other technical services, and services relating to maintenance of offices. These reflect the underlying momentum in trade of professional and technology related services.

• Net FDI into India accelerated on the strength of sustained domestic activity and positive investment climate with inflows channeling into manufacturing, business and computer services. Outward FDI remained on track as reflecting the appetite of Indian companies for global expansion in terms of markets and resources.
• Higher recourse to ECBs and short-term credit was enabled by lower spreads on external borrowings and rising financing requirements for capacity expansion.
• Other capital rose mainly representing leads and lags in exports receipts.

• Net accretion to foreign exchange reserves on a BoP basis (i.e., excluding valuation) at US $ 8.6 billion was enabled by strong capital inflows, notwithstanding a sizeable current account deficit (Chart 5). Taking into account the valuation gain of US $ 5.1 billion, foreign exchange reserves recorded an increase of US $ 13.7 billion during April-September 2006 as against a modest increase of US $ 1.5 billion during the corresponding period of the previous year [A press release on sources of accretion to foreign exchange reserves is released separately].

• At the end of September 2006, with outstanding foreign exchange reserves at US $ 165.3 billion, India held the fifth largest stock of reserves among the emerging markets and sixth largest in the world.
  

According to the Revisions Policy announced on September 30, 2004, the data for 2005-06 and the first quarter of 2006-07 are to be revised. The BoP data have been accordingly revised based on latest information reported by various reporting entities. The revised data are presented in the standard format of presentation in Statement 2.