India’s current account deeper into red in first quarter

India’s current account deficit deteriorated during the first quarter of the current fiscal year but this was more than offset by robust capital flows so that the overall balance of payments improved to $5.44 billion from $3.74 billion a year ago.

The actual accretion to the foreign exchange reserves was, however, even more substantial at $10.9 billion as an almost equivalent amount — $5.5 billion — emanated from valuation gains; this is because, unlike during the same period of the preceding fiscal, this year the US dollar had depreciated against other major currencies.

The Reserve Bank of India has unveiled the external payments position data in a revised format that conforms to the International Monetary Fund’s Balance of Payments Manual 6, but the data are also presented in the old format but in far greater detail than it used to in the past in the press releases on the subject.

Basically, both are the same with the difference being confined to the categorisation of items that constitute the balance of payments. This has been elaborated in an annexe to the press release.

Although exports grew at a faster rate than imports during April-June vis-a-vis the same quarter of the previous year, the merchandise trade deficit turned out to be higher — $35.54 billion as against $31.86 billion.

This was offset to some extent by a better performance in invisibles — that comprise services, transfers and income, mainly investment income. Net invisibles earnings had soared to $21.33 billion from $19.76 billion.

In the event, the current account in the balance of payments was in the red to the tune of $14.21 billion compared with last year’s $12.10 billion. Also, invisibles could finance the current account deficit to the extent of 60% now as against 62%.

Among the broad groupings of the invisibles, net receipts from services had improved to $12.07 billion from $9.59 billion and transfers to $13.61 billion from $13.02 billion. The outgo on account of income exceeded receipts and the gap was larger at $4.34 billion than the previous year’s $2.86 billion.

In contrast to the current account, the capital account of the external payments ledger presented a distinctly better picture during the first three months of the current year. In net terms, capital flows amounted to $20.94 billion as against $16.76 billion.

But the composition of capital flows showed a mixed picture. While foreign direct investment had soared to $7.2 billion (net) from $2.9 billion, debt-creating flows too had risen sharply in the first quarter of the current fiscal.

According to RBI, loans including external aid, external commercial borrowings and banking capital, had nearly doubled to $14.8 billion. Also, the dependence on portfolio investments to bolster foreign exchange reserves was markedly lower — $2.3 billion as compared to $3.5 billion.