Balance of Payments - Slips into deficit :Edelweiss Research PDF link

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Balance of Payments (BoP) slipped into deficit of USD12.8bn in Q3FY12, first time since December 2008, as weak capital flows (USD6.6bn) could not fund the widening Current Account Deficit (CAD) of ~USD19.4bn (4.3% of GDP). Trade deficit widened to 10.5% of GDP (from ~9.9% in Q2), as exports slowed in the wake of deteriorating external economy and imports held up on rising gold imports. Invisibles, however, improved on account of rise in software exports and flow of remittances during the quarter. Meanwhile, capital flows, particularly ECB and short-term loans, were subdued reflecting escalation of stress in EU banking system although FDI flows were healthy.

In Q4, BoP situation should stabilize as CAD narrows with seasonal improvement in exports and recovery in capital flows. Nonetheless, CAD is expected to reach an elevated level of ~3.8% of GDP in FY12.

Balance of Payments - Slips into deficit

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