International Investment Position (IIP) is a statistical statement that shows, at a point in time, the value and the composition of (a) financial assets of residents of an economy that are claims on non-residents and gold bullion held as reserve assets and (b) liabilities of residents of an economy to non-residents. The difference between an economy's external financial assets and liabilities is its net IIP, which may be positive or negative. Such balance sheet analysis of international accounts helps in understanding sustainability and vulnerability and is useful for analysing economic structure, studying the relationship to domestic sources of financing and other policy considerations.

India’s Net International Investment Position (IIP) showed an improvement to a net liability of US $ 224.9 billion at end-September 2011 from US $ 237.5 billion at end-June 2011. This reduction in net liabilities was led mainly by a reduction of US $ 16.7 billion in liabilities, which was partially offset by a smaller decline of US $ 4.1 billion in assets. The decline, however, reflected valuation changes emanating from exchange rate movements.

Following are the highlights of IIP for the quarter-ended September 2011:

I. Overall International Investment Position

(i) Quarterly Variations:

a. International financial assets stood at US$ 434.7 billion as at end-September 2011 with a decrease of US$ 4.1 billion over the previous quarter (Table 1). Reserve assets, which remained the major source, decreased by US$ 4.2 billion to US$ 311.5 billion at end-September 2011. Among other sources, Direct Investment abroad moved up by US$ 2.9 billion during the quarter to US$ 109.1 billion as at end-September 2011.

b. International financial liabilities decreased by US$ 16.7 billion over the previous quarter to US$ 659.6 billion as at end-September 2011. Direct and portfolio investments in India decreased by US$ 11.6 billion and US$ 14.5 billion, respectively. Among other investments, trade credit and loans (mainly ECBs) increased by US$ 2.9 billion and US$ 7.5 billion, respectively.

• Due to rupee depreciation during the quarter, equity liabilities for June 2011 were revised downwards by US$ 34.3 billion when valued at end-September 2011 exchange rate (US$ 19.2 billion in Direct investment, US$ 15.1 billion in Portfolio investment).

c. Net claims of non-residents on India as reflected by the Net IIP (International financial assets less International financial liabilities) decreased by US$ 12.6 billion over the previous quarter to US$ 224.9 billion as at end-September 2011.

d. The declining trend in the ratio of India’s international financial assets to international financial liabilities improved during the latest quarter and the ratio stood at 65.9 per cent in September 2011 (64.9 per cent by June 2011).

(b)  Annual Variations

• International financial assets increased by US$ 27.8 billion on a year-on-year basis (Table 1). Among the external financial assets, direct investment abroad and reserve assets moved up by US$ 17.6 billion and US$ 18.6 billion respectively.

• International financial liabilities increased by US$ 47.7 billion on a year-on-year basis to US$ 659.6 billion as at end-September 2011. This was led mainly by Direct investment in India, loans (mainly ECBs) and currency & deposits (mainly NRI deposits). With rise in merchandise trade, the year-on-year increase in trade credit to Indian companies amounted to US$ 10.1 billion.

• The net claims of non-residents on India increased by US$ 19.9 billion as at end-September 2011, on a year-on-year basis, primarily due to increase in net inflow of direct investment, as also in ECBs (Table 1) even as reserve assets and direct investment abroad increased substantially.

• There was a decline in the ratio of India’s international financial assets to international financial liabilities from 77.9 per cent in September 2009 to 66.5 per cent in September 2010 and further to 65.9 per cent in September 2011 as the trend in growth in liabilities outpaced that in assets.

II.   Composition of External Financial Assets and Liabilities

• Reserve Assets continued to have the dominant share (71.7 per cent) in India’s international financial assets in September 2011, followed by direct investment abroad (25.1 per cent) (Table 2).

• Direct Investment (32.3 per cent), Portfolio Investment (24.5 per cent), loans (mainly ECBs) (24.0 per cent), trade credit (10.1 per cent) and currency and deposits (7.9 per cent) were the major constituents of the country’s financial liabilities.

III.   External Debt Liabilities vis-à-vis External Non-Debt Liabilities

Due to lower levels of Direct Investment and Portfolio Investment liabilities in US dollar terms, the share of non-debt liabilities declined to 50.3 per cent as at end-September 2011 from 52.9 per cent at end-June 2011 (Table 3).

As per the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF), data on IIP are to be disseminated on an annual basis with a time lag of two quarters (quarterly encouraged with one quarter’s lag). India’s quarterly IIP was being disseminated with a lag of less than two quarters since June 2006 and the lag reduced to one quarter since June 2009.  The last quarterly IIP as at end-June 2011 was put in public domain on September 30, 2011.

Ajit Prasad
Assistant General Manager

Press Release : 2011-2012/1040