Current a/c deficit narrows in Q1 2009-10

India's overall balance of payments (BoP) position has improved considerably at the end of the first quarter as the diaspora and foreign portfolio investors have kept the faith even as a slowdown in imports narrowed the current account deficit. According to preliminary data released by RBI, current account deficit derived from crossborder transactions of goods and services amounted to $5.8 billion during the quarter ended June ‘09 compared with a deficit of $9 billion in the quarter a year ago. The overall BoP, which includes both current as well as capital account transactions (that includes various equity and debt flows), ended in a marginal surplus of $115 million ($2.2 billion) on account of a capital account surplus of $6.8 billion ($11.1 billion). The total trade deficit—the difference between merchandise imports and exports—was lower at $26 billion during April-June ‘09 compared with $31.2 billion during the previous comparable quarter. Services surplus reflected as invisibles in BoP, however, was lower at $20 billion ($22 billion). Interestingly, remittances by overseas Indians as reflected in private transfers (comprising a significant portion of invisibles) stood at $12.9 billion as against $11.6 billion in the previous comparable quarter. “The figures show the resilience of remittances from non-residents, belying fears that there would be a dip following the global crisis,” said an economist with Anand Rathi Securities. Capital inflows improved on the back of strong investments by foreign portfolio investors. Net inflows through the foreign direct investment (FDI) route were also steady at $6.8 billion, albeit lower than the year-ago quarter’s $8.97 billion. “A welcome shift in the pattern of inflows is the move away from debt to equity,” said an economist with a brokerage firm. Interestingly, there were net outflows of $356 million under the external commercial borrowings head. However, strong FDI inflows put capital inflows in the positive territory. While net FDI inflows amounted to $6.8 billion ($9 billion) during the quarter, foreign portfolio investors brought in $8.2 billion compared to an outflow of $5.2 billion in the same period a year ago.