Preliminary data on India’s balance of payments (BoP) for the second quarter (Q2) i.e., July-September 2008 of the financial year 2008-09, are now available. These preliminary data and the partially revised data for the first quarter (Q1) i.e., April-June 2008, have been taken into account for compiling the BoP data for the first half of the current financial year i.e., April-September 2008. Full details of these data are set out in the standard format of BoP presentation in Statements I and II.

As per the Revision Policy, the revisions of the data on balance of payments (BoP) for the financial years 2006-07, 2007-08 and first quarter of 2008-09 have also been undertaken.

1. Balance of Payments (BoP) for July-September 2008 (Q2)

The major items of the BoP for second quarter (Q2) of 2008-09 are set out below in Table 1.

Merchandise Trade

(i) On a BoP basis, India’s merchandise exports recorded a growth of 24.6 per cent in Q2 of 2008-09 as compared with 17.0 per cent in Q2 of 2007-08.

(ii) Import payments, on a BoP basis, registered 45.0 per cent growth in Q2 of 2008-09 as compared with an increase of 22.2 per cent in Q2 of 2007-08.

(iii) According to the data released by the DGCI&S,  both oil imports and non-oil imports during Q2 of 2008-09 were significantly higher by 45.1 per cent (11.3 per cent in Q2 of 2007-08) and 37.6 per cent (22.4 per cent in Q2 of 2007-08), respectively. Oil imports in Q2 of 2008-09 accounted for about 33.2 per cent of total imports (32.0 per cent in Q2 of 2007-08). The major drivers of non-oil imports were capital goods, chemicals and fertilisers.

Trade Deficit

(i) Consequent upon the relatively higher growth in imports than exports, trade deficit on a BoP basis was higher at US $ 38.6 billion in Q2 of 2008-09 (US $ 21.2 billion in Q2 of 2007-08).

Invisibles

(i) Invisible receipts, comprising services, current transfers and income, rose by 33.9 per cent in Q2 of 2008-09 (36.8 per cent in Q2 of 2007-08) mainly due to increase in receipts under private transfers along with steady growth in software services exports, business and professional services, travel and transportation.

(ii) Invisible payments reflected outbound tourist traffic from India, rising payments towards transportation, domestic demand for business related services and investment income payments in the form of interest payments and dividends.

(iii) Net invisibles (invisibles receipts minus invisibles payments) amounted to US $ 26.1 billion in July-September 2008 (US $ 16.9 billion in July-September 2007) (Table 2). At this level, net invisibles surplus financed 67.5 per cent of trade deficit in Q2 of 2008-09 (79.8 per cent in Q2 of 2007-08).

Current Account Deficit

(i) 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 US $ 12.5 billion in Q2 of 2008-09 (US $ 4.3 billion in Q2 of 2007-08).

Capital Account and Reserves

(i) 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.

(ii) The gross capital inflows to India during Q2 of 2008-09 amounted to US $ 85.7 billion (US $ 95.0 billion in Q2 of 2007-08) as against an gross outflows from India at US $ 77.5 billion (US $ 61.9 billion in Q2 of 2007-08).

(iii) Reflecting volatile movement of capital flows, the net capital flows were significantly lower at US $ 8.2 billion in Q2 of 2008-09 than that of US $ 33.2 billion in Q2 of 2007-08.

(iv) Under capital flows (net), foreign direct investments (FDI) witnessed steady growth, while the portfolio investment recorded net outflows (Table 3).

(v) FDI broadly comprise equity, reinvested earnings and inter-corporate loans. Net FDI flows (net inward FDI minus net outward FDI) were higher at US $ 5.6 billion in Q2 of 2008-09 as compared with US $ 2.1 billion in Q2 of 2007-08. Net inward FDI remained buoyant at US $ 8.8 billion during Q2 of 2008-09 (US $ 4.7 billion in Q2 of 2007-08) reflecting relatively strong fundamental of Indian economy and continuing liberalization measures by the Government of India to attract FDI. Net outward FDI amounted to US $ 3.2 billion in Q2 of 2008-09 (US $ 2.6 billion in Q2 of 2007-08).

(vi) Portfolio investment primarily comprising foreign institutional investors’ (FIIs) investments and American Depository Receipts (ADRs)/Global Depository Receipts (GDRs) continued to witness net outflows at US $ 1.3 billion in Q2 of 2008-09 (as against net inflows of US $ 10.9 billion in Q2 of 2007-08). Outflows under portfolio investment were led by large sales of equities by FIIs in the Indian stock market and slowdown in net inflows under ADRs/GDRs due to drying-up of liquidity in the overseas market.

(vii) The decline in foreign exchange reserves on BoP basis (i.e., excluding valuation) amounted to US $ 4.7 billion in Q2 of 2008-09 as against an accretion of reserves of US $ 29.2 billion in Q2 of 2007-08. The decline in the reserves was due to widening trade deficits coupled with moderation in capital flows led by FIIs.

1. Balance of Payments (BoP) for April-September 2008

(i) As alluded to earlier, taking into account the partially revised data for Q1 of 2008-09 and the preliminary data for Q2 of 2008-09, the BoP data for the first half of the financial year 2008-09 (April-September) have been compiled. While the detailed data are set out in Statements I and II in standard format of BoP presentation, the major items are presented in Table 4.

Merchandise Trade

(i) On a BoP basis, India’s merchandise exports posted a growth of 33.2 per cent in April-September 2008 (16.5 per cent in the corresponding period of the previous year).

(ii) According to the commodity-wise data available for April-July 2008 from the Directorate General of Commercial Intelligence and Statistics (DGCI&S), exports of agricultural and allied products, textile products, ores and minerals, engineering goods, petroleum products showed higher growth.

(iii) Import payments, on a BoP basis, increased substantially and recorded a growth of 43.2 per cent during April-September 2008 as compared with 21.5 per cent in the corresponding period of the previous year.

(iv) According to the DGCI&S data, while oil imports recorded a significant growth of 59.2 per cent in April-September 2008 (17.1 per cent in the corresponding period of the previous year), non-oil imports showed a relatively modest growth of 29.4 per cent (33.2 per cent in the corresponding period of the previous year). In absolute terms, the oil imports accounted for about 35.6 per cent of total imports during April-September 2008 (31.0 per cent in the corresponding period of the previous year).

(v) According to the DGCI&S data, out of total increase in imports of US $ 43.1 billion in April-September 2008 over the corresponding period of the previous year, oil imports contributed an increase of US $ 20.5 billion (47.5 per cent as against 20.9 per cent in April-September 2007), while non-oil imports contributed an increase of US $ 22.6 billion (52.5 per cent as against 79.1 per cent in April-September 2007).

(vi) According to the commodity-wise DGCI&S data available for April-July 2008, the items under the non oil imports which showed higher growth were fertilizers, capital goods and chemicals, while imports of items like edible oil, pulses, and pearls and semi-precious stones declined.

(vii) The sharp increase in oil imports reflected the impact of increasing oil price of the Indian basket of international crude (a mix of Oman, Dubai and Brent varieties), which increased to an average of US $ 116.5 per barrel in April-September 2008 from an average of US $ 69.3 per barrel in the corresponding period of the previous year (Chart 1).

Trade Deficit

(i) On a BoP basis, the merchandise trade deficit widened to US $ 69.2 billion during April-September 2008 from US $ 43.2 billion in April-September 2007 on account of significant growth in imports (Chart 2).

Invisibles

Invisible Receipts

(i) Invisible receipts, comprising services, current transfers and income, rose by 29.8 per cent in April-September 2008 (28.3 per cent in the corresponding period of the previous year) mainly due to increase in receipts under private transfers along with the steady growth in  software services exports, business services, travel and transportation (Table 5 and Chart 3).

(ii) Private transfers are mainly in the form of (i) Inward remittances from Indian workers abroad for family maintenance, (ii) Local withdrawal from Non-Resident Indian Rupee deposits, (iii) Gold and silver brought through passenger baggage, and (iv) Personal gifts/donations to charitable/religious institutions.

(iii) Private transfer receipts, comprising mainly remittances from Indians working overseas, increased to US $ 27.0 billion in April-September 2008 as compared to US $ 18.0 billion in the corresponding period of the previous year. Private transfer receipts constituted 15.1 per cent of current receipts in April-September 2008 (13.2 per cent in the corresponding period of the previous year).

(iv) NRI deposits when withdrawn domestically, form part of private transfers because once withdrawn for local use these become unilateral transfers and do not have any quid pro quo. Such local withdrawals/redemptions from NRI deposits cease to exist as liability in the capital account of the balance of payments and assume the form of private transfers, which is included in the current account of balance of payments.

(v) Under the NRI deposits, both inflows as well as outflows remained steady in the recent past. A major part of outflows from NRI deposits is in the form of local withdrawals. These withdrawals, however, are not actually repatriated but are utilised domestically.  During April-September 2008, the share of local withdrawals in total outflows from NRI deposits was 65.4 per cent as compared with 64.1 per cent in April-September 2007 (Table 6).

(vi) Under Private transfer, the inward remittances for family maintenance accounted for about 52.8 per cent of the total private transfer receipts, while local withdrawals accounted for about 41.5 per cent in April-September 2008 as against 50.2 per cent and 43.8 per cent, respectively, in April-September 2007 (Table 7).

(vii) Software receipts at US $ 21.9 billion in April-September 2008 showed a lower growth of 22.3 per cent than that of 26.3 per cent in April-September 2007.

(viii) Miscellaneous receipts, excluding software exports, stood at US $ 14.3 billion in April-September 2008 (US $ 12.3 billion in April-September 2007). The break-up of these data is presented in Table 8.

(ix) The key components of the business services receipts and payments were mainly the 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 (Table 9).

(x) Investment income receipts amounted to US $ 7.3 billion in April-September 2008 as compared with US $ 5.9 billion in April-September 2007.

Invisible Payments

(i) Invisible payments showed an increase of 14.0 per cent in April-September 2008 (17.1 per cent in April-September 2007). The invisible payments mainly reflected the movement in payments relating to those of travel payments, transportation, business and management consultancy, engineering and other technical services, dividends, profit and interest payments. The moderation in growth rate of invisible payments during April-September 2008 was mainly due to moderate payments relating to a number of business and professional services.  

(ii) Higher transportation payments in April-September of 2008 (39.1 per cent) mainly reflected the pace of rising volume of imports. In addition, higher payments may also be attributed to the rising freight rates on international shipping due to surge in international crude oil prices. 

(iii) Investment income payments, reflecting mainly the interest payments on commercial borrowings, external assistance and non-resident deposits, and reinvested earnings of the foreign direct investment (FDI) enterprises operating in India amounted to US $ 8.8 billion in April-September 2008, almost same as in the corresponding period of the previous year (Table 10).

Invisibles Balance

(i) Net invisibles (invisibles receipts minus invisibles payments) stood at US $ 46.8 billion during April-September of 2008 (US $ 32.3 billion during April-September 2007) mainly led by higher growth in private transfers and steady growth in software exports. At this level, the invisible surplus financed about 67.7 per cent of trade deficit during April-September 2008 as against 74.6 per cent during April-September 2007.

Current Account Deficit

(i) Despite higher net invisible surplus, the widening trade deficit mainly due to higher imports led to higher current account deficit at US $ 22.3 billion in April-September 2008 (US $ 11.0 billion in April-September 2007 (Chart 4).  

Capital Account

(i) The gross capital inflows to India during April-September 2008 amounted to US $ 176.3 billion (US $ 164.5 billion in April-September 2007) as against an outflow of US $ 156.4 billion (US $ 113.6 billion in April-September 2007) (Table 11).

(ii) Net capital flows, however, at US $ 19.9 billion in April-September 2008 remained much lower as compared with US $ 50.9 billion in April-September 2007. Under net capital flows, all the components except FDI and NRI deposits, showed decline during April-September 2008 from their level in the corresponding period of the previous year (Table 12).

(iii) Foreign direct investments (FDI) broadly comprise equity, reinvested earnings and inter-corporate loans. Net inward FDI into India remained buoyant at US $ 20.7 billion during April-September 2008 (US $ 12.2 billion in April-September 2007) reflecting the continuing pace of expansion of domestic activities, positive investment climate and continuing liberalization measures to attract FDI. FDI was channeled mainly into manufacturing (20.8 per cent) followed by construction sector (13.6 per cent) and financial services (12.6 per cent). Net outward FDI of India moderated to US $ 6.1 billion in April-September 2008 (US $ 7.3 billion in April-September 2007) reflecting the slowdown in global business activities. Due to large inward FDI, the net FDI (inward FDI minus outward FDI) was higher at US $ 14.6 billion in April-September 2008 as against US $ 4.9 billion in April-September 2007.

(iv) Portfolio investment mainly comprising of foreign institutional investors (FIIs) investments and American depository receipts (ADRs)/global depository receipts (GDRs) witnessed large net outflows (US $ 5.5 billion) in April-September 2008 (net inflows of US $ 18.4 billion in April-September 2007) due to large sales of equities by FIIs in the Indian stock market reflecting bearish condition in stock market and slowdown in the global economy. The inflows under ADRs/ GDRs slowed down to US $ 1.1 billion in April-September 2008  (US $ 2.8 billion in April-September 2007).