The balance of payment (BoP) situation improved during Q1FY13, registering a marginal surplus (of ~USD0.5bn) compared to a sizeable deficit (of USD5.7bn) in the previous quarter. CAD narrowed to ~USD16.5bn (3.9% of GDP versus 4.5% previously) and capital flows (at USD17bn) adequately funded the deficit despite poor global risk appetite. Trade deficit (in goods) improved despite slowing exports as imports slowed faster led by declining gold imports. Meanwhile, among invisibles, while software exports moderated on weaker external demand, NRI remittances were strong, attracted by weaker INR. On the capital account front, while portfolio flows were weak, stronger inflows in NRI deposits and rebound in trade credit held up overall flows.
For FY13, we maintain our CAD estimate of ~USD65bn (~3.3% of GDP) and foresee substantial improvement in capital flows following a series of policy actions by the Indian government and aggressive monetary actions by western central banks.
Regards,
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