BALANCE OF PAYMENT

Shrinking foreign trade

INDIA’s trade deficit during the first nine months of fiscal 2009-10 on a balance
of payments (BoP) basis was lower at US$ 89.51 bn compared with US$ 98.44 bn
during the same period in fiscal 2008-09. The trade deficit on a BoP basis in Q3
(US$ 30.72 billion) was, however, less than that in Q3 of 2008-09 (US$ 34.04
billion). This is revealed in e report (India's Balance of Payments
Developments during the first quarter (October-December) of 2009-10)
of the country’s central banking authority Reserve Bank of India (RBI).

The key features of India’s BoP that emerged in Q3 of fiscal 2009-10 were:(i)
Exports recorded a growth of 13.2 per cent during Q3 of 2009-10 over the
corresponding quarter of the previous year, after consecutive declines in the last
four quarters.(ii) Imports registered a growth of 2.6 per cent in Q3 of 2009-10
after recording consecutive declines in the last three quarters.(iii) Private transfer
receipts remained robust during Q3 of 2009-10.(iv) Despite low trade deficit, the
current account deficit was higher at US$ 12.0 billion during Q3 of 2009-10
mainly due to lower invisibles surplus.(v) The current account deficit during April-
December 2009 was higher at US$ 30.3 billion as compared to US$ 27.5 billion
during April-December 2008.(vi) Surplus in capital account increased sharply to
US$ 43.2 billion during April-December 2009 (US$ 5.8 billion during April-
December 2008) mainly on account of large inflows under FDI, Portfolio
investment, NRI deposits and commercial loans.(vii) As the surplus in capital
account exceeded the current account deficit, there was a net accretion to foreign
exchange reserves of US$ 11.3 billion during April-December 2009 (as against a
drawdown of US$ 20.4 billion during April-December 2008).

Major Items of India's Balance of Payments

(US$ million)

April-December April-December
(2007-08) (PR) (2008-09) (P)
(2008-09) (PR) (2009-10) (P)

Exports 166163 175184 150520 124473

Imports 257789 294587 248967 213988

Trade Balance -91626 -119403 -98446 -89515

Invisibles, net 74592 89587 70931 59185

Current Account
-17034 -29817 -27516 -30330
Balance

Capital Account* 109198 9737 7136 41630

Change in -92164 20080 20380 -11330

Reserves#
(+ indicates
increase;- indicates
decrease)

Including errors & omissions; # On BoP basis excluding valuation; P: Preliminary, PR: Partially revised. R: revised

SOURCE: Reserve Bank of India Report

Invisibles
The decline in invisibles receipts, which started in the Q4 of 2008-09, continued
during Q3 of 2009-10. Invisibles receipts registered a decline of 3.1 per cent
during the quarter (as against an increase of 5.4 per cent in Q3 of 2008-09)
mainly on account of decline in business, communication and financial services,
and investment income receipts. Although, software exports recorded a robust
growth of 15.3 per cent, services exports as a whole witnessed a decline of 12.3
per cent during the quarter as against an increase of 11.8 per cent during the
corresponding quarter of 2008-09.

Invisible receipts recorded a decline of 7.7 per cent during April-December 2009,
as compared with an increase of 22.2 per cent in the corresponding period of the
previous year, mainly due to the lower receipts under almost all components of
services coupled with lower investment income receipts.

Invisibles Payments
Invisibles payments recorded a growth of 12.9 per cent during Q3 of 2009-10, as
compared with a low growth of 2.4 per cent in Q3 of 2008-09, mainly led by
increase in payments under almost all components of services.

Invisibles payments witnessed a positive growth of 3.7 per cent in April-December

2009 (10.4 per cent in April-December 2008) mainly supported by higher
business, communication and financial services, and increase in payments under
investment income account.

Invisibles Balance
Size of invisibles surplus in Q3 of 2009-10 was, however, lower than Q3 of
preceding year. Therefore, despite low trade deficit, the current account deficit
was higher at US$ 12.0 billion in Q3 of 2009-10 (US$ 11.7 billion in Q3 of 2008-
09).

Net invisibles (invisibles receipts minus invisibles payments) stood at US$ 59.2
billion during April-December 2009 as compared with US$ 70.9 billion during
April-December 2008. At this level, the invisibles surplus financed 66.1 per cent of
trade deficit during April-December 2009 as against 72.0 per cent during April-
December 2008.

Current Account Deficit

Net invisibles (invisibles receipts minus invisibles payments) stood at US$ 59.2
billion during April-December 2009 as compared with US$ 70.9 billion during
April-December 2008. At this level, the invisibles surplus financed 66.1 per cent of
trade deficit during April-December 2009 as against 72.0 per cent during April-
December 2008.

Net capital flows at US$ 43.2 billion in April-December 2009 was much higher as
compared with US$ 5.8 billion in April-December 2008 mainly due to larger
inflows under FDI, portfolio investments and NRI deposits

Due to lower outward FDI, the net FDI (inward FDI minus outward FDI) was
higher at US$ 16.5 billion in April-December 2009 as compared with US$ 14.3
billion in April-December 2008.

Portfolio investment witnessed large net inflows of US$ 23.6 billion during April-
December 2009 as against a net outflow of US$ 11.3 billion in April-December
2008 due to large net FII inflows of US$ 20.5 billion.

Net external commercial borrowings (ECBs) inflow slowed down to US$ 2.3 billion
in April-December 2009 (US$ 6.9 billion in April-December 2008) mainly due to
increased repayments.

The increase in foreign exchange reserves on BoP basis (i.e., excluding valuation)
was US$ 11.3 billion in April-December 2009 (as against a sharp decline in
reserves of US$ 20.4 billion in April-December 2008). [A Press Release on the
Sources of Variation in Foreign Exchange Reserves is separately issued].

The gross disbursements of short-term trade credit was US$ 10.1 billion during
Q1 of 2009-10 almost same in Q1 of 2008-09. The repayments of short-term
trade credits, however, were very high at US$ 13.2 billion in Q1 of 2009-10 (US$
7.8 billion in Q1 of 2008-09). As a result, there were net outflows of US$ 3.1
billion under short-term trade credit during Q1 of 2009-10 (inflows of US$ 2.4
billion in Q1 of 2008-09)

Banking capital mainly consists of foreign assets and liabilities of commercial

banks. NRI deposits constitute major part of the foreign liabilities. Banking capital
(net), including NRI deposits, were negative at US$ 3.4 billion during Q1 of 2009-
10 as against a positive net inflow of US$ 2.7 billion during Q1 of 2008-09.
Among the components of banking capital, NRI deposits witnessed higher inflows
of US$ 1.8 billion in Q1 of 2009-10 (net inflows of US$ 0.8 billion in Q1 of 2008-
09) reflecting the positive impact of the revisions in the ceiling interest rate on
NRI deposits.

Other capital includes leads and lags in exports, funds held abroad, advances
received pending for issue of shares under FDI and other capital not included
elsewhere (n.i.e.). Other capital recorded net outflows of US$ 1.6 billion in Q1 of
2009-10.
Balance of Payments (BoP)
Merchandise Trade
Exports
On a BoP basis, India’s merchandise exports posted a decline of 17.3 per cent in
April-December 2009 (as against a high growth of 27.5 per cent in the
corresponding period of the previous year).

INDIA's cumulative value of exports for the first 11 months of fiscal 2009-10 (April-2009 to
February-2010) stood at US $ 152983 million (Rs 727345 crore) as against US $ 172379 million
(Rs. 774585 crore) registering a negative growth of 11.3 per cent in Dollar terms and 6.1 per cent in
Rupee terms over the same period last year. Country's cumulative value of imports for the period
April, 2009- February, 2010 was US $ 248401 million (Rs. 1180124 crore) as against US $ 287099
million (Rs. 1289412 crore) registering a negative growth of 13.5 per cent in Dollar terms and 8.5
per cent in Rupee terms over the same period last year.

Oil imports during this 11-month period were valued at US$ 73230 million which was 18.2 per cent
lower than the oil imports of US $ 89492 million in the corresponding period last year. Non-oil
imports during April, 2009- February, 2010 were valued at US$ 175171 million which was 11.4 per
cent lower than the level of such imports valued at US$ 197607 million in April 2008- February,
2009.

EXPORTS & IMPORTS (April-February, FY 2009-10)

In $ Million In Rs Crore

Exports including re-exports

2008-09 172379 774585

2009-10 152983 727345

Growth 2009-10/2008-2009
-11.3 -6.1
(percent)

Imports

2008-09 287099 1289412

2009-10 248401 1180124

Growth 2009-10/2008-2009
-13.5 -8.5
(percent)

Trade Balance

2008-09 -114721 -514827

2009-10 -95418 -452779

Figures for 2008-09 are the latest revised whereas figures for 2009-10 are provisional
 The trade deficit for April 2009- February, 2010 was estimated at US $ 95418 million which was
lower than the deficit of US $ 114721 million during April 2008 -February, 2009.

Source: Federal Ministry of Commerce, Government of India

Imports

Import payments, on a BoP basis, also remained lower recording a decline of 14.0
per cent during April-December 2009 as compared with a high growth of 35.6 per
cent in the corresponding period of the previous year.

According to the DGCI&S data, exports declined by 17.3 per cent, and imports
growth was negative at 22.0 per cent led by the decline in both oil imports (a
decline of 29.7 per cent) and non-oil imports (a decline of 18.4 per cent) during
April-December 2009.

On a BoP basis, the merchandise trade deficit decreased to US$ 89.5 billion during
April-December 2009 from US$ 98.4 billion in April-December 2008 mainly on
account of both lower oil and non-oil import payments

Inflows & Outflows from NRI Deposits and Local Withdrawals

(In $ million)

Inflows Outflows Local Withdrawals

2006-07 (R) 19914 15593 13208

2007-08 (PR) 29401 29222 18919

2008-09 (P) 37,089 32,799 20,617

2008-09 (Q1) (PR) 9063 8249 5157

2009-10 (Q1) (P) 11172 9354 5568

P: Preliminary, PR: Partially revised. R: revised

SOURCE: Reserve Bank of India report India's Balance of Payments Developments during the First
Quarter (April-June 2009) of 2009-10

Variation in Reserves

During April-December 2009, there was an accretion to foreign exchange reserves

mainly on account of valuation gains. Also, inflows under foreign investments,
Non-Resident Indian deposits and short-term trade credits have contributed
significantly to the increase in foreign exchange reserves during April-December
2009.

On balance of payments basis (i.e., excluding valuation effects), the foreign

exchange reserves increased by US$ 11,300 million during April-December 2009
as against a decline of US$ 20,380 million during April-December 2008. The
 valuation gains, reflecting the depreciation of the US dollar against the major
currencies, accounted for US$ 20,185 million during April-December 2009 as
compared with a valuation loss of US$ 33,375 million during April-December
2008. Accordingly, valuation gains during April-December 2009 accounted for
64.1 per cent of the total increase in foreign exchange reserves.

-----------------

* India's fiscal year is from April to March

KEY INDICATORS OF INDIA'S BALANCE OF PAYMENTS

2008-09 (Q1) 2009-10 (Q1)

2007-08 2008-09
(PR) (P)

Merchandize Trade

Exports ($ on BoP basis) Growth Rate

28.9 5.4 43.0 -21.0
(percent)

Imports ($ on BoP basis) Growth Rate

35.2 14.3 42.9 -19.6
(percent)

Crude Oil Prices, Per Barrel (Indian

79.2 82.4 118.8 63.9
Basket)

Trade Balance ($ billion) -91.6 -119.4 -31.4 -26.0

Invisibles

Net Invisibles ($ Billion) 74.6 89.6 22.4 20.2

Net Invisibles Surplus/Trade Deficit

81.4 75.0 71.3 77.7
(Percent)

Invisible Receipts/Current Receipts

47.2 48.1 44.2 49.9
(Percent)

Services Receipts/Current Receipts

28.6 30.0 26.2 28.9
(Percent)

Private Transfers/Current Receipts

13.8 13.7 13.8 17.2
(Percent)

Current Account

Current Receipts ($ Billion) 314.8 337.7 88.1 77.5

Current Payments ($ Billion) 331.8 367.6 97.1 83.3

Current Account Balance ($ Billion) -17.0 -29.8 -9.0 -5.8

Capital Account

Gross Capital Inflows ($ Billion) 433.0 302.5 90.9 78.5

Gross Capital Outflows ($ Billion) 325.0 293.3 79.7 71.8

Net Capital Flows ($ Billion) 108.0 9.1 11.1 6.7

Net FDI/Net Capital Flows (Percent) 14.3 191.3 80.5 101.4

Net Portfolio Investment/Net capital
27.4 -153.4 -37.8 122.7
Flows (Percent)

Net ECBs/Net capital Flows (Percent) 21.0 89.2 13.2 -5.3

Reserves

Import Cover of Reserves (In months) 14.4 10.3 13.3 11.4

Outstanding Reserves as at end

309.7 252.0 312.1 265.1
period ($ Billion)

SOURCE: Reserve Bank of India report India's Balance of Payments Developments during the First
Quarter (April-June 2009) of 2009-10

TOP

India's Merchandize Trade (2003-04 to 2008-09 )

Year Exports Growth (Percent) Imports Growth (Percent)

2003-04 63.8 - 78.1 -

2004-05 83.5 30.8 111.5 42.7

2005-06 103.1 23.4 149.2 33.8

2006-07 126.3 22.5 185.6 24.4

2007-08 162.9 29.0 251.4 35.5

2008-09 (April-
March) - 5.4 - 14.3

SOURCE: Federal Ministry of Commerce, Government of India

Gross Capital Inflows and Outflows (In $ Million)

Gross Inflows Gross Out flows

HEADS April-March April-March

2008- 2008-
2008- 09 2008- 09 2009-10
2009-10 (Q1) (P)
09 P (Q1) 09 P (Q1) (Q1) (P)
(PR) (PR)

Foreign Direct
36258 12137 9612 18762 3170 2779
Investment

Portfolio Investment 128651 40764 38625 142685 44975 30357

External Assistance 5,042 909 821 2,404 558 737

External Commercial
15,382 2760 2092 7,224 1293 2448
Borrowings
NRI Deposits 37,089 9063 11172 32,799 8249 9354

Banking capital
27,909 12889 4405 35596 11007 9588
excluding NR Deposits

Short-term trade
39,734 10176 10126 45529 7779 13211
Credits

Rupee Debt Service 0 0 0 101 30 23

Other Capital 12,391 2176 1636 8210 2678 3256

TOTAL 302,456 90784 78489 293310 79739 71753

R: Revised; P: Preliminary; PR: Partially Revised

SOURCE: Reserve Bank of India report India's Balance of Payments Developments during the First
Quarter (April-June 2009) of 2009-10

Business Services (In $ Million)

Receipts Payments
Item
April-March April-March

2008- 2007- 2008- 2007-

2006-07 R 2006-07 R
09 P 08 PR 09 P 08 PR

Trade Related 2,008 2233 1325 1,642 2285 1801

Business &
Management 4,847 4433 4476 3,512 3653 3484
Consultancy

Architectural,
Engineering & other 1,759 3144 3457 3,106 3173 3025
Technical

Maintenance of Offices 2,980 2861 2638 3,283 3,496 4,032

Others 4,657 4100 2648 3,726 4,108 3,522

TOTAL 16,251 16771 14544 15,269 16715 15866

R: Revised; P:
Preliminary; PR: Partially
Revised

SOURCE: Reserve Bank of India Report on Balance of Payment, December 2008