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Economy
Balance of Payments
1QFY12 BoP: CAD widens back to 3%. India’s CAD widened to US$14.2 bn (3.1% of
GDP) from US$5.4 bn in 4QFY11. However, with capital flows rising sharply, the overall
BoP recorded a healthy US$5.4 bn surplus as against US$2 bn in 4QFY11 and US$3.7
bn in 1QFY11. We look for a modest surplus of US$4.5 bn in BoP in FY2012E under
assumption for oil at US$110 a barrel. The BoP remains on a knife-edge, especially with
the global risks of a sharp deterioration rising and with the CAD/GDP ratio moving back
to a 3% zone in 1QFY12. Separately, the RBI published the BoP data as per the
standard presentation suggested by the IMFs BoP manual (6th edition), which gives
more details of India’s transactions with the rest of the world.
CAD worsens despite the stupendous export growth
India’s current account deteriorated sharply in 1QFY12, reversing the marked improvement seen in
the current account balances over the previous two quarters. CAD widened to US$14.2 bn or
3.1% of GDP from US$5.4 bn in 4QFY11 (1.1% of GDP) and US$12.1 bn in 1QFY11 (3.2% of
GDP). This deterioration came despite a 45.7% yoy growth in exports, as imports grew by an
equally strong 33.2%. As is generally seen, imports under the BoP at US$116.1 bn were higher
than that suggested by the DGCI&S data by US$5.5 bn, reflecting possibly defence related
payments. Under the new BoP format, the RBI distinguished between non-monetary gold trade
and goods. India imported US$10.2 bn worth of gold in 1QFY12, a jump of 58.7% yoy. Overall,
trade deficit widened to US$35.5 bn in 1QFY12 from US$ 29.9 bn in 4QFY11. Invisible receipts at
US$21.3 bn also declined from the previous quarter (US$24.5 bn), further worsening the CAD.
Net services receipts were lower (travel, transportation and software services) while investment
income fell further owing to the low interest rate regime prevailing globally. Remittances were
largely stable possibly as the crisis in the Middle East encouraged money transfers from these
regions.
Capital account flows pick up, helping a modest surplus on BoP
Capital flows, after having surprised on the lower side over the previous two quarters, recovered
sharply in 1QFY12. Total capital flows amounted to US$20.9 bn as against a mere US$8.2 bn in
4QFY11. While all the major heads under capital account saw higher inflows in 1QFY12 in
comparison to 4QFY11, the greatest increase was seen in banking capital (US$12.7bn versus (-)
US$0.8bn) and FDIs (US$ 7.2 bn versus US$0.6 bn in 4QFY11). The swing in the banking capital
was due to a combination of banks drawing down their foreign currency assets head abroad as
well as increasing their overseas borrowing. External commercial borrowings stood at US$2.9 bn
(US$2.4 bn in 4QFY11) while short term credit was US$3.1 bn (versus US$2.7 bn in 4QFY11).
Overall, the BoP surplus rose to the highest in seven quarters at US$5.4 bn in 1QFY12.
BoP to record a modest surplus in FY2012E; risks from deterioration in global conditions
We have been highlighting the delicate balance in India’s BoP position in FY2012E and today’s
data reinforces this view. On the current account side, we expect export growth to taper off as
global demand weakens and the positive impact of the DEPB scheme fades. Imports, on the other
hand, might not come off sharply as there could be still some resilience for commodity prices in
general from sliding sharply with continuing monetary accommodation from the developed
economies. Moderation in net service receipts, owing to weak global demand and negative
investment income due to the low global interest rate regime, will see the CAD at close to
US$61.0 bn (3.1% of GDP) in FY2012E as against US$44.3 bn in FY2011 (2.6% of GDP). On the
capital account, while 1QFY12 flows were healthy, there are risks to portfolio flows as well as
short-term credit if the global environment deteriorates sharply. We thus expect overall BoP in
FY2012E at US$4.5 bn sharply lower than US$13.1 bn in FY2011.
RBI presents new BoP format in line with IMF guidelines
The RBI published the BoP data as per the standard presentation suggested by the IMFs BoP
manual (6th edition), which gives more details of India’s transactions with the ROW. While
there has been a reclassification of items between the old and the new format, the broad
aggregate dynamics of the current account and the capital account (as defined under the
old format) remain unchanged. As historical numbers in the new BoP format are not
available, we present our FY2012E BoP forecasts as per the old format and would update
forecasts to the new format once more information is available related to the new format.
Please find a comparison of the old and new BoP format below.
This section lists out the major changes in the various accounts of BoP to provide a link
between the earlier and new formats.
Current Account
Services have been presented in the new format under the 12 sub-heads with minor
reclassification of the heads.
Income and private transfers have been classified under the heads of ‘primary income’
and ‘secondary income’, respectively. ’Primary income‘ includes compensation of
employees and investment income from the old format. ’Secondary income‘ in the new
format includes only the private transfers portion, while official transfers is included as
part of rechristened capital account.
Capital Account
Existing capital account (under old format) has been bifurcated under two heads as
‘capital account’ and ‘financial account’ in the new format. Accordingly, the rechristened
capital account in the new format includes only official transfer part of current account
and purchase/sale of intangible assets like patents, copyrights, trademarks etc., portion of
capital account of the old format.
Financial Account
The ‘financial account’ in the new format is actually the significant portion of the capital
account as under the old format.
Purchase/sale of intangible assets like patents, copyrights, trademarks, etc., portion of
capital account of the old format is now excluded and is part of the new ‘capital account’.
The key change is the inclusion of reserve assets, which was an item below the
line in the old format.
Funds raised by Indian corporate houses through ADRs/ GDRs which was part of portfolio
investment in the old format has been classified under ‘other investments’.
Banking capital has been classified into three parts. (1) NRI deposits has been named as
‘currency and deposits’ of ‘deposit taking corporations, except the central bank’; (2)
movements in Nostro/Vostro balances have been classified as ‘loans to deposit taking
corporations’; (3) ‘Others’ of banking capital in the old format has been included as
currency and deposits of central banks.
External assistance to/by India has been reclassified as loans to/by General Government.
External Commercial Borrowings to/by India have been reclassified as loans to/by other
sectors.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Balance of Payments
1QFY12 BoP: CAD widens back to 3%. India’s CAD widened to US$14.2 bn (3.1% of
GDP) from US$5.4 bn in 4QFY11. However, with capital flows rising sharply, the overall
BoP recorded a healthy US$5.4 bn surplus as against US$2 bn in 4QFY11 and US$3.7
bn in 1QFY11. We look for a modest surplus of US$4.5 bn in BoP in FY2012E under
assumption for oil at US$110 a barrel. The BoP remains on a knife-edge, especially with
the global risks of a sharp deterioration rising and with the CAD/GDP ratio moving back
to a 3% zone in 1QFY12. Separately, the RBI published the BoP data as per the
standard presentation suggested by the IMFs BoP manual (6th edition), which gives
more details of India’s transactions with the rest of the world.
CAD worsens despite the stupendous export growth
India’s current account deteriorated sharply in 1QFY12, reversing the marked improvement seen in
the current account balances over the previous two quarters. CAD widened to US$14.2 bn or
3.1% of GDP from US$5.4 bn in 4QFY11 (1.1% of GDP) and US$12.1 bn in 1QFY11 (3.2% of
GDP). This deterioration came despite a 45.7% yoy growth in exports, as imports grew by an
equally strong 33.2%. As is generally seen, imports under the BoP at US$116.1 bn were higher
than that suggested by the DGCI&S data by US$5.5 bn, reflecting possibly defence related
payments. Under the new BoP format, the RBI distinguished between non-monetary gold trade
and goods. India imported US$10.2 bn worth of gold in 1QFY12, a jump of 58.7% yoy. Overall,
trade deficit widened to US$35.5 bn in 1QFY12 from US$ 29.9 bn in 4QFY11. Invisible receipts at
US$21.3 bn also declined from the previous quarter (US$24.5 bn), further worsening the CAD.
Net services receipts were lower (travel, transportation and software services) while investment
income fell further owing to the low interest rate regime prevailing globally. Remittances were
largely stable possibly as the crisis in the Middle East encouraged money transfers from these
regions.
Capital account flows pick up, helping a modest surplus on BoP
Capital flows, after having surprised on the lower side over the previous two quarters, recovered
sharply in 1QFY12. Total capital flows amounted to US$20.9 bn as against a mere US$8.2 bn in
4QFY11. While all the major heads under capital account saw higher inflows in 1QFY12 in
comparison to 4QFY11, the greatest increase was seen in banking capital (US$12.7bn versus (-)
US$0.8bn) and FDIs (US$ 7.2 bn versus US$0.6 bn in 4QFY11). The swing in the banking capital
was due to a combination of banks drawing down their foreign currency assets head abroad as
well as increasing their overseas borrowing. External commercial borrowings stood at US$2.9 bn
(US$2.4 bn in 4QFY11) while short term credit was US$3.1 bn (versus US$2.7 bn in 4QFY11).
Overall, the BoP surplus rose to the highest in seven quarters at US$5.4 bn in 1QFY12.
BoP to record a modest surplus in FY2012E; risks from deterioration in global conditions
We have been highlighting the delicate balance in India’s BoP position in FY2012E and today’s
data reinforces this view. On the current account side, we expect export growth to taper off as
global demand weakens and the positive impact of the DEPB scheme fades. Imports, on the other
hand, might not come off sharply as there could be still some resilience for commodity prices in
general from sliding sharply with continuing monetary accommodation from the developed
economies. Moderation in net service receipts, owing to weak global demand and negative
investment income due to the low global interest rate regime, will see the CAD at close to
US$61.0 bn (3.1% of GDP) in FY2012E as against US$44.3 bn in FY2011 (2.6% of GDP). On the
capital account, while 1QFY12 flows were healthy, there are risks to portfolio flows as well as
short-term credit if the global environment deteriorates sharply. We thus expect overall BoP in
FY2012E at US$4.5 bn sharply lower than US$13.1 bn in FY2011.
RBI presents new BoP format in line with IMF guidelines
The RBI published the BoP data as per the standard presentation suggested by the IMFs BoP
manual (6th edition), which gives more details of India’s transactions with the ROW. While
there has been a reclassification of items between the old and the new format, the broad
aggregate dynamics of the current account and the capital account (as defined under the
old format) remain unchanged. As historical numbers in the new BoP format are not
available, we present our FY2012E BoP forecasts as per the old format and would update
forecasts to the new format once more information is available related to the new format.
Please find a comparison of the old and new BoP format below.
This section lists out the major changes in the various accounts of BoP to provide a link
between the earlier and new formats.
Current Account
Services have been presented in the new format under the 12 sub-heads with minor
reclassification of the heads.
Income and private transfers have been classified under the heads of ‘primary income’
and ‘secondary income’, respectively. ’Primary income‘ includes compensation of
employees and investment income from the old format. ’Secondary income‘ in the new
format includes only the private transfers portion, while official transfers is included as
part of rechristened capital account.
Capital Account
Existing capital account (under old format) has been bifurcated under two heads as
‘capital account’ and ‘financial account’ in the new format. Accordingly, the rechristened
capital account in the new format includes only official transfer part of current account
and purchase/sale of intangible assets like patents, copyrights, trademarks etc., portion of
capital account of the old format.
Financial Account
The ‘financial account’ in the new format is actually the significant portion of the capital
account as under the old format.
Purchase/sale of intangible assets like patents, copyrights, trademarks, etc., portion of
capital account of the old format is now excluded and is part of the new ‘capital account’.
The key change is the inclusion of reserve assets, which was an item below the
line in the old format.
Funds raised by Indian corporate houses through ADRs/ GDRs which was part of portfolio
investment in the old format has been classified under ‘other investments’.
Banking capital has been classified into three parts. (1) NRI deposits has been named as
‘currency and deposits’ of ‘deposit taking corporations, except the central bank’; (2)
movements in Nostro/Vostro balances have been classified as ‘loans to deposit taking
corporations’; (3) ‘Others’ of banking capital in the old format has been included as
currency and deposits of central banks.
External assistance to/by India has been reclassified as loans to/by General Government.
External Commercial Borrowings to/by India have been reclassified as loans to/by other
sectors.
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