Preliminary data on India’s balance of payments (BoP) for the fourth quarter (Q4) of the financial year 2006-07, i.e., January-March 2007, are now available. These preliminary data, combined with the partially revised data for the first three quarters (i.e., April-June 2006, July-September 2006 and October-December 2006) provide an assessment of the BoP for the financial year 2006-07. The BoP data in the standard format of presentation are set out in Statement 1 and Statement 2.

January-March 2007

The major items of the BoP for Q4 of 2006-07 are set out in Table 1 and details are in Statement 1.

Merchandise Trade

• On BoP basis, India’s Merchandise exports posted a growth of 11.4 per cent in Q4 of 2006-07 as compared with 10.8 per cent in Q4 of 2005-06.
• Import payments, on BoP basis, recorded 16.4 per cent growth in Q4 of 2006-07 as against an increase of 21.9 per cent in Q4 of 2005-06.
• According to the data released by Directorate General of Commercial Intelligence and Statistics (DGCI&S), while oil import growth significantly decelerated to 7.6 per cent in Q4 of 2006-07 (48.3 per cent in Q4 of 2005-06), non-oil imports recorded a strong  growth of 29.2 per cent (negative growth of 3.7 per cent in Q4 of 2005-06).
• Oil imports reflected the impact of moderating oil price of the Indian basket of international crude (a mix of Dubai and Brent varieties), which declined to US $ 56.6 per barrel in Q4 of 2006-07 from US $ 59.6 per barrel in the corresponding quarter of the previous year.
•  Non-oil imports showed momentum due to upturn in the gold and silver demand, and pick up in metalliferrous ores and metal scraps, iron and steel, besides the steady growth in capital goods.

Trade Deficit

• On BoP basis, trade deficit increased to US $ 15.2 billion in Q4 of 2006-07 (US $ 11.8 billion in Q4 of 2005-06) mainly on account of higher growth in non-oil imports.

Invisibles

• Invisible receipts showed a steady growth in Q4 of 2006-07 (29.8 per cent), while payments recorded a moderate growth. 
• Steady expansion in invisibles reflected mainly the growth in exports of commercial services such as software, professional services, travel, and inward remittances from overseas Indians.

Current Account Surplus

• The current account recorded a surplus of US $ 2.6 billion in Q4 of 2006-07 as against a  surplus of US $ 2.8 billion in Q4 of 2005-06.
• The surplus in current account during Q4 of 2006-07 was mainly on account of the following.

• Buoyant growth in invisibles led by exports of software services (29.9 per cent), travel receipts (19.5 per cent) and private transfers (19.1 per cent) during Q4 of 2006-07 over the Q4 of 2005-06.
• Deceleration of merchandise imports growth from 21.9 per cent in Q4 of 2005-06 to 16.4 per cent in Q4 of 2006-07. As per the DGCI&S data, this deceleration was mainly due to significant slowdown in oil imports growth (7.6 per cent in Q4 of 2006-07).
• Higher growth in exports at 11.4 per cent in Q4 of 2006-07 as compared with 10.8 per cent in Q4 of 2005-06.

Capital Account and Reserves

• The net capital inflows rose substantially to US $ 17.1 billion in Q4 of 2006-07 from US $ 10.0 billion in Q4 of 2005-06. The major sources of capital inflows were external commercial borrowings (ECBs), foreign direct investment (FDI), American Depository Receipts (ADRs)/Global Depository Receipts (GDRs) issues and overseas borrowings by the banks.
• Direct investment showed strong bi-directional movement, reflecting higher FDI into India as well as overseas investments by the Indian companies.
• Portfolio equity inflows by foreign institutional investors (FIIs) were lower in Q4 of 2006-07 than the corresponding period of the previous year due to outflows witnessed on the back of global developments such as volatility and weakness in the major stock markets and withdrawal of funds from the emerging markets.
• On BoP basis, accretion to foreign exchange reserves (excluding valuation) at US $ 20.5 billion in Q4 of 2006-07 was significantly higher than US $ 13.2 billion in Q4 of 2005-06, led by buoyant capital inflows coupled with the surplus in the current account (Table 2).

2006-07 (April-March)

            The BoP position for the full financial year 2006-07 has been worked out taking into account the partially revised data for the first three quarters of 2006-07 and the preliminary data compiled for Q4 of 2006-07. While the detailed data are set out in Statement 2 in standard format of presentation, the major items are set out in Table 3.

Merchandise Trade

• On BoP basis, merchandise exports recorded an increase of 20.9 per cent during 2006-07 (23.4 per cent in the previous year).
• Merchandise import payments, on BoP basis, showed moderation in growth at 22.3 per cent in 2006-07 (32.0 per cent in 2005-06).
• The commodity-wise data released by DGCI&S (April-February 2006-07) revealed that both primary products and manufactured products, in general, showed a moderation in export growth. Within the primary products, tea and spices, under the manufactured products, engineering goods and petroleum products remained as the growth drivers.
• According to DGCI&S data, non oil imports increased by 24.7 per cent in 2006-07 (21.8 per cent in 2005-06). The major contributors to the growth in non-oil imports were capital goods, metalliferrous ores, metal scrap and gold and silver.
• Crude oil imports during 2006-07 recorded some moderation in growth at 30.4 per cent (47.3 per cent in 2005-06).
• The average price of the Indian basket of international crude (a mix of Dubai and Brent varieties) stood at US $ 62.4 per barrel during 2006-07 as compared with US $ 55.4 per barrel during 2005-06 (Chart 1). Besides the rise in oil prices, the oil import demand in volume terms rose to 13.3 per cent in 2006-07 from 7.8 per cent in 2005-06, reflecting the higher momentum of domestic industrial activity.

Trade Deficit

• On BoP basis, with imports outpacing the growth in exports, trade deficit widened to US $ 64.9 billion (or 7.1 per cent of GDP) from US $ 51.8 billion (or 6.4 per cent of GDP) in 2005-06 (Chart 2).

Invisibles

• Invisible receipts, comprising services, current transfers and incomes, rose by 29.1 per cent during 2006-07 mainly due to the momentum maintained in the growth of software services exports, other professional and business services, travel, along with the steady inflow of remittances from overseas Indians (Table 4 and Chart 3).

• Private transfer receipts mainly comprising remittances from Indians working overseas, remained steady at US $ 28.2 billion in 2006-07 as compared with US $ 24.6 billion in 2005-06, reflecting the buoyant economic activity in source regions of remittances.

• Invisible payments grew by 28.7 per cent in 2006-07 on account of surge in outbound tourist traffic, business and management consultancy services, engineering and technical services and dividend and profit payouts. 
• The non-software miscellaneous receipts, increased to US $ 31.1 billion in 2006-07 from US $ 22.3 billion in 2005-06 (Table 5).

• Business services receipts and payments 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

• With turnaround to a surplus in Q4 of 2006-07, the current account deficit for the full financial year 2006-07 amounted to US $ 9.6 billion or 1.1 per cent of GDP) (US $ 9.2 billion in 2005-06 or 1.1 per cent of GDP)  (Chart 4).     

Capital Account

• The capital flows to India remained buoyant reflecting the sustained momentum of domestic economic activity and the interest rate environment. The net capital flows nearly doubled to US $ 44.9 billion in 2006-07 from US $ 23.4 billion in 2005-06.
• The capital flows were dominated both by the debt as well as the non-debt flows. Notable developments were the significant ECBs inflows, strong bi-directional movement in direct investment, and large inflows through Non-Resident Indian (NRI) deposits and issuances of ADR/GDR by the Indian corporates (Table 6).
• Among the components of capital flows, ECBs inflows alone accounted for about 36 per cent, enabled by favourable liquidity and the interest rates in the global markets on the one hand and rising financing requirements for capacity expansion domestically on the other hand.

• Net FDI into India accelerated on the strength of sustained domestic activity and positive investment climate. FDI was channelled mainly into financial services, manufacturing, banking services, information technology services and construction.
• Outward FDI of India also showed significant 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. Furthermore, the volatility in global stock markets witnessed in March 2007 and the withdrawal of funds by the foreign investors from the emerging markets led to significant outflows from the Indian market in March 2007. Thus, the net FII inflows during 2006-07 were lower than the previous year. Resources mobilised by the Indian companies through their global offerings of ADRs/GDRs abroad remained buoyant.
• Other capital, which comprise mainly the leads and lags in export receipts (difference between the custom data and the banking channel data), funds held abroad, and the residual item of other capital transactions not included elsewhere such as flows arising from cross-border financial derivative and commodity hedging transactions, migrant transfers, and sale of intangible assets such as patents, copyrights, trade marks, etc. amounted to US $ 6.4 billion in 2006-07.

Reserves Accretion

• Net accretion to foreign exchange reserves on BoP basis (i.e., excluding valuation) at US $ 36.6 billion in 2006-07 was led mainly by strong capital inflows (Chart 5). Taking into account the valuation gain of US $ 10.9 billion, foreign exchange reserves recorded an increase of US $ 47.5 billion in 2006-07 (US $ 10.1 billion in 2005-06). [A Press Release on the sources of accretion to foreign exchange reserves is separately issued].

• At the end of March 2007, with outstanding foreign exchange reserves at      US $ 199.2 billion, India held the fifth largest stock of reserves among the emerging market economies and sixth largest in the world.

Revisions in BoP Data for first three quarters of 2006-07

Following the Revisions Policy announced on September 30, 2004, the BoP data for the first three quarters of 2006-07 are revised based on latest information reported by various reporting entities. These data are presented in the standard format of presentation in Statement 1 and Statement 2.

G. Raghuraj
Deputy General Manager

Press Release : 2006-2007/1815