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Economy
Balance of Payments
3QFY11 BoP: Current account deficit concerns put to rest. India’s current account
deficit (CAD) came down sharply from its record high levels of US$16.8 bn in 2QFY11
to US$9.7 bn (2.1% of GDP) in line with our estimate US$10 bn. The support to the
current account came from (1) a strong export growth which helped to narrow the
trade deficit and (2) a pick-up in net invisible receipts. However, net capital inflows
moderated quite sharply which resulted in a very modest balance of payment surplus of
US$4 bn.
Current account deficit worries ease
India’s ballooning CAD had been a cause of worry over the last few quarters, with CAD/GDP ratio
in excess of 3% of GDP for the past five quarters. However, these concerns were put to rest by
today’s data as CAD/GDP ratio dropped to 2.1% in 3QFY11 from 4.3% in 2QFY11 and 3.3% in
3QFY10. The improvement was driven by (1) a narrowing of the trade deficit and (2) an increase in
invisible receipts. While export growth picked up sharply owing to an improvement in global
demand (39.8% in 3QFY11 from 19.3% in 2QFY11), import demand was steady at around
24.9%. This helped bring down the trade deficit to US$31.6 bn from a record high of US$37.8 bn
in the previous quarter. Further, invisible receipts were strong owing to a pick-up in software
service exports as well as travel services. Additionally, private transfers were also robust at US$13.4
bn, up 5%. On an FYTD basis, CAD/GDP is still large at 3.1% or US$38.9 bn.
BoP import data at odds with DGCI&S
The difference between imports on BoP basis and that on DGCI&S basis was exceptionally large in
3QFY11, with imports on BoP basis US$17 bn higher at US$98 bn. This difference is generally on
account of the exclusion of some items such as defence imports in the monthly DGCI&S data.
Additionally, the divergence is also due to the difference in the accounting of the two data. While
DGCI&S import data is based on movement of goods across the custom frontier (shipment basis),
BoP import data is based on payment basis.
Capital inflows deceleration led by portfolio flows
In 3QFY11, total capital flows slowed down markedly to US$14.9 bn from US$21.3 bn in the
previous quarter. This is certainly a cause of worry, especially in light of India’s large CAD. The
sharp deterioration in capital account surplus was mainly due to a deceleration in the more volatile
portfolio flows which dropped sharply to US$6.3 bn in 3QFY11 from US$19.2 bn in 2QFY11.
While October had seen very sharp FII inflows in relation to the Coal India IPO (US$28.7 bn), there
was a sharp reversal in November on account of IPO related repatriation (US$-19.8 bn).
Additionally, heightened European sovereign debt concerns in November-December also soured
global investor sentiment, slowing portfolio flows to emerging markets including India. The more
stable long term equity flows, i.e. net FDI inflows remained subdued during this quarter, at US$2.1
bn, on account of higher FDI outflows. On the positive side, ECB flows were higher at US$3.6 bn
from US$1.7 bn in 3QFY10, due to higher disbursements to India, while banking capital also rose
sharply to US$4.9 bn.
Balance of Payment surplus likely to remain modest
India’s overall Balance of Payment position did not show any substantial improvement as the
positive trends on current account were negated by a reduction in the capital account surplus. The
BoP surplus was stable at US$4 bn from US$3.3 bn in 2QFY11. For the full year, we stick to our
earlier expectation of BoP surplus at US$15 bn only modestly higher than US$13.4 bn in FY2010.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Balance of Payments
3QFY11 BoP: Current account deficit concerns put to rest. India’s current account
deficit (CAD) came down sharply from its record high levels of US$16.8 bn in 2QFY11
to US$9.7 bn (2.1% of GDP) in line with our estimate US$10 bn. The support to the
current account came from (1) a strong export growth which helped to narrow the
trade deficit and (2) a pick-up in net invisible receipts. However, net capital inflows
moderated quite sharply which resulted in a very modest balance of payment surplus of
US$4 bn.
Current account deficit worries ease
India’s ballooning CAD had been a cause of worry over the last few quarters, with CAD/GDP ratio
in excess of 3% of GDP for the past five quarters. However, these concerns were put to rest by
today’s data as CAD/GDP ratio dropped to 2.1% in 3QFY11 from 4.3% in 2QFY11 and 3.3% in
3QFY10. The improvement was driven by (1) a narrowing of the trade deficit and (2) an increase in
invisible receipts. While export growth picked up sharply owing to an improvement in global
demand (39.8% in 3QFY11 from 19.3% in 2QFY11), import demand was steady at around
24.9%. This helped bring down the trade deficit to US$31.6 bn from a record high of US$37.8 bn
in the previous quarter. Further, invisible receipts were strong owing to a pick-up in software
service exports as well as travel services. Additionally, private transfers were also robust at US$13.4
bn, up 5%. On an FYTD basis, CAD/GDP is still large at 3.1% or US$38.9 bn.
BoP import data at odds with DGCI&S
The difference between imports on BoP basis and that on DGCI&S basis was exceptionally large in
3QFY11, with imports on BoP basis US$17 bn higher at US$98 bn. This difference is generally on
account of the exclusion of some items such as defence imports in the monthly DGCI&S data.
Additionally, the divergence is also due to the difference in the accounting of the two data. While
DGCI&S import data is based on movement of goods across the custom frontier (shipment basis),
BoP import data is based on payment basis.
Capital inflows deceleration led by portfolio flows
In 3QFY11, total capital flows slowed down markedly to US$14.9 bn from US$21.3 bn in the
previous quarter. This is certainly a cause of worry, especially in light of India’s large CAD. The
sharp deterioration in capital account surplus was mainly due to a deceleration in the more volatile
portfolio flows which dropped sharply to US$6.3 bn in 3QFY11 from US$19.2 bn in 2QFY11.
While October had seen very sharp FII inflows in relation to the Coal India IPO (US$28.7 bn), there
was a sharp reversal in November on account of IPO related repatriation (US$-19.8 bn).
Additionally, heightened European sovereign debt concerns in November-December also soured
global investor sentiment, slowing portfolio flows to emerging markets including India. The more
stable long term equity flows, i.e. net FDI inflows remained subdued during this quarter, at US$2.1
bn, on account of higher FDI outflows. On the positive side, ECB flows were higher at US$3.6 bn
from US$1.7 bn in 3QFY10, due to higher disbursements to India, while banking capital also rose
sharply to US$4.9 bn.
Balance of Payment surplus likely to remain modest
India’s overall Balance of Payment position did not show any substantial improvement as the
positive trends on current account were negated by a reduction in the capital account surplus. The
BoP surplus was stable at US$4 bn from US$3.3 bn in 2QFY11. For the full year, we stick to our
earlier expectation of BoP surplus at US$15 bn only modestly higher than US$13.4 bn in FY2010.
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