Preliminary data on India’s balance of payments (BoP) for the third quarter (Q3) of the financial year 2006-07 i.e., October-December 2006, are now available. These preliminary data, combined with the partially revised data for the first two quarters (i.e., April-June 2006 and July-September 2006) provide an assessment of the BoP for the period April-December 2006. Full details of BoP data are set out in the standard format of presentation in Statement 1, Statement 2.

October-December 2006

            The major items of the BoP for Q3 of 2006-07 are set out in Table 1 and details in Statement 1.

Merchandise Trade

• On BoP basis, India’s Merchandise exports posted a moderate growth of 14 per cent in Q3 of 2006-07 as compared with 21.2 per cent in Q3 of the previous year.
• Import payments, on BoP basis, recorded 25.0 per cent growth in Q3 of 2006-07 as against an increase of 17.3 per cent in Q3 of 2005-06.
• According to the commodity-wise break up released by Directorate General of Commercial Intelligence and Statistics (DGCI&S), the deceleration in exports growth (up to November 2006) was mainly due to slowdown in exports of manufactured goods.
• According to the data released by DGCI&S, while oil imports recorded an increase of 35.4 per cent in Q3 of 2006-07 (53.9 per cent in Q3 of 2005-06), non-oil imports witnessed a growth of 24.0 per cent (11.9 per cent in Q3 of 2005-06).
• Oil imports reflected the impact of high oil price of the Indian basket of international crude (a mix of Dubai and Brent varieties), which rose to US $ 58.3 per barrel in Q3 of 2006-07 from US $ 54.5 per barrel in the corresponding quarter of the previous year.
• Non-oil imports showed momentum due to seasonal upturn in the gold demand with stable prices, and pick up in metalliferrous ores and metal scraps, iron and steel, pearls, precious and semi-precious stones, besides the steady growth in capital goods.

Trade Deficit

• Strong oil import demand along with pick-up of non-oil imports, led to a steady expansion in trade deficit, on BoP basis, to US $ 19.0 billion in Q3 of 2006-07 (US $ 13.0 billion in Q3 of 2005-06)

Invisibles

• Net invisible receipts nearly doubled in Q3 of 2006-07 on account of sharp rise in invisible receipts (33.4 per cent), while payments remained at almost the same level as the corresponding period of the previous year, which included India Millennium Deposits (IMDs) interest payments. 
• Steady expansion in invisibles surplus reflected mainly the rise in software, professional and business services, and remittances from overseas Indians.

Current Account Deficit

• Despite widening of the trade deficit to US $ 19.0 billion in Q3 of 2006-07 (US $ 13.0 billion in Q3 of 2005-06), current account deficit narrowed to US $ 3.0 billion in Q3 of 2006-07 (US $ 4.8 billion in Q3 of 2005-06) due to large invisibles receipts. 

Capital Account and Reserves

• The net capital inflows in Q3 of 2006-07 were placed substantially higher at US $ 10.7 billion than that of US $ 0.4 billion in Q3 of 2005-06. It may be mentioned that in Q3 of 2005-06, net capital flows were affected by outflows due to repayments of IMDs (US $ 5.5 billion). 
• Under capital account, while the direct investment showed strong bi-directional movement, reflecting higher inward as well as outward investments, portfolio investment turned buoyant on the back of rising stock prices.
• While the direct investment inflows to India surged in the third quarter (US $ 8.7 billion), outward direct investment from India (US $ 6.4 billion) also showed strong growth due to some large overseas acquisitions.

• The major contributors to net capital inflows were external commercial borrowings, NRI deposits and other capital.

• Other capital has been an important component of capital account in Q3 of 2006-07 (US $3.2 billion). The large increase in other capital is due to difference in the banking channel and the DGCI&S data (US $4.1 billion).

• On BoP basis, accretion to foreign exchange reserves (excluding valuation) at US $ 7.5 billion in Q3 of 2006-07 was higher than US $ 4.7 billion in Q3 of 2005-06.

April-December 2006

            Taking into account the partially revised data for the Q1 and Q2 of 2006-07 and the preliminary data compiled for Q3 of 2006-07, the BoP position for the period April-December of the financial year 2006-07 has been worked out. While the detailed data are set out in Statement 2 in standard format of presentation, the major items are set out in Table 2.

Merchandise Trade

• On BoP basis, merchandise exports recorded an increase of 22.5 per cent during April-December 2006 (29.5 per cent in the corresponding period of the previous year).
• Merchandise import payments, on BoP basis, showed 25.3 per cent growth in April-December 2006 as compared with 36.2 per cent in the corresponding period of previous year.
• According to commodity-wise data released by DGCI&S (up to November 2006), deceleration in exports growth occurred on account of slowdown in exports of manufactured goods viz., chemical and related products, textile and textile products, leather and manufactures, and decline in exports of handicrafts and gems and jewellery.
• Oil imports, as per DGCI&S data, increased by 39.2 per cent in April-December 2006 (46.9 per cent in April-December 2005), while non-oil imports recorded a moderate growth of 18.6 per cent ( 34.3 per cent in April-December 2005).
• The rise in crude oil imports reflected (i) elevated international oil prices despite some moderation in the third quarter of 2006-07, and (ii) the strong volume growth. While the average crude oil price recorded a year-on-year increase of 19 per cent during April-December 2006, volume growth was about 16 per cent.
• The average price of the Indian basket of international crude (a mix of Dubai and Brent varieties) rose to US $ 64.3 per barrel in April-December 2006 from US $ 54 per barrel in the corresponding period of the previous year (Chart 1).

Trade Deficit

• With the growth in imports, mainly on account of oil imports, outstripping the pace of export growth, merchandise trade deficit, on a BoP basis, sharply increased to US $ 52.3 billion from US $ 40.1 billion in April-December 2005 (Chart 2).

Invisibles

• Invisible receipts rose by 29.9 per cent during April-December 2006 mainly due to significant growth in software exports, other professional and business services, travel and transportation, besides steady inflow of remittances from overseas Indians
  (Table 3).

• Private transfer receipts, comprising primarily remittances from Indians working overseas, remained steady at US $ 19.6 billion in April-December 2006 as compared with US $ 17.2 billion in April-December 2005 (Chart 3).

• Invisible payments also grew (18.9 per cent) during April-December 2006 on account of surge in outbound tourist traffic, business services such as business and management consultancy, engineering, technical and dividend and profit payouts.
• The miscellaneous receipts, net of software, were recorded at US $ 21.6 billion in April-December 2006 (US $ 14.7 billion in April-December 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 and engineering services and other technical services, and office maintenance services. These reflect the underlying momentum in trade of professional and technology related services.

Current Account Deficit

• Current account deficit at US $ 11.8 billion in April-December 2006 remained broadly at the same level of the corresponding period of the previous year mainly on account of higher net invisibles receipts  (Chart 4).     

Capital Account

• Net capital flows surged to US $ 27.3 billion from US $ 13.4 billion in April-December 2005.
• The capital flows, were dominated by strong bi-directional movement in foreign direct investment, and buoyant inflows through external commercial borrowings (ECBs), NRI deposits and portfolio flows (Table 5).

• 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. FDI was channelled mainly into financial services, manufacturing, banking services, information technology services and construction. Mauritius, the US and Singapore remain the dominant sources of FDI to India.
• Outward FDI of India also showed robust increase due to appetite of Indian companies for global expansion reflected in some large overseas acquisitions.
• As regards portfolio equity flows, foreign institutional investors (FIIs) made large purchases in the Indian stock market during August-November 2006, more than offsetting the outflows witnessed during May-July 2006. During December 2006, however, FIIs registered outflows against the backdrop of volatility in Asian equity markets subsequent to the tightening of capital controls by Thailand. On the whole, net FII inflows during April-December 2006 were lower as compared with the same period last year. Resources mobilised through the issuances of American Depository Receipts (ADRs)/Global Depository Receipts (GDRs) abroad also remained buoyant.
• Other major contributors to capital inflows were external commercial borrowings and NRI deposits. Higher recourse to ECBs was enabled by lower spreads on external borrowings and rising financing requirements for capacity expansion domestically.
• Net inflows under NRI deposits during April-December 2006 were substantially higher than a year ago, partly attributable to higher interest rates offered. The ceiling interest rate on NRE deposits was raised by 25 basis points in April 2006 to LIBOR/SWAP rates of US dollar plus 100 basis points and on FCNR (B) deposits by 25 basis points in March 2006 to LIBOR/SWAP rates.
• Other capital rose, mainly representing leads in exports receipts, particularly in Q3 of 2006-07. Other capital mainly representing the leads and lags in exports amounted to US $ 3.9 billion during April-December. It may be mentioned that these indicate difference in banking channel and customs data on exports, which occurred in Q3 of 2006-07.

Reserves Accretion

• Net accretion to foreign exchange reserves on a BoP basis (i.e., excluding valuation) at US $ 16.2 billion was enabled by strong capital inflows, notwithstanding a sizeable current account deficit (Chart 5). Taking into account the valuation gain of US $ 9.4 billion, foreign exchange reserves recorded an increase of US $ 25.6 billion during April-December 2006 (against an outflow of US $ 4.3 billion during the corresponding period of the previous year).

• At the end of December 2006, with outstanding foreign exchange reserves at US $ 177.3 billion, India held the fifth largest stock of reserves among the emerging market and sixth largest in the world.

Revisions in BoP Data for first two quarters of 2006-07
According to the Revisions Policy announced on September 30, 2004, the data for the first two quarters 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 1, Statement 2.

Alpana Killawala
Chief General Manager

Press Release : 2006-2007/1324