Balance of Payment Q3 FY (October-December 2012)

Transcription

1 Balance of Payment Q3 FY (October-December 2012) Key Highlights: - India s Current Account Deficit (CAD) widened to a record high of 6.7% of GDP in Q3 FY on the back of surging oil and gold imports. - The CAD for April-December 2012 period was at US$ 72.0 billion as against US$ 56.4 billion in the corresponding period last year. - Widening CAD highlights the elevated trade deficit on account of suppressed external demand and relatively inelastic POL imports especially oil and gold. - However, the overall Balance of Payment (BoP) position moved back to surplus zone (US$ billion) after the BoP position slipped to deficit zone in Q2 FY Net invisible contracted; though Net Service Receipts recorded a growth of in Q3 FY on the back of a sturdy growth in travel, transport, software services and financial services. - Pickup in capital flow aided in fully funding the CAD; the surge in Capital flow was on account of a healthy growth in Portfolio investment, but the more stable FDI inflow (net) witnessed a considerable fall. BoP position recovers but CAD touches new high [USD Bn] Balance of Payment (Old Format) 5.44 Q Q Q Q Q Q Q Balance of Payment (New Format) Current Account Capital Account Financial Account Q1 Q2 Q3 The BoP improved slightly to US$ billion in the third quarter of FY (October-December) compared to a huge deficit of US$ 12.8 billion in Q3 FY and a deficit of US$ billion in the previous quarter of June-September 2012 (Q2 FY ). However, the CAD widened to US$ 32.6 billion in Q3 FY (6.7% of GDP) as against US$ 22.6 billion (5.4% of GDP) in Q2 FY and US$ 20.0 billion (4.4% of GDP) in Q3 FY The higher level of CAD can be attributed to expanding trade deficit which was mainly on account of a meager growth in merchandise exports as against a sharp surge in imports. The trade deficit augmented to US$ 59.6 billion in Q3 FY as against US$ 48.7 billion in Q3 of FY and US$ 48.3 billion in Q2 FY

2 A muted merchandise exports highlights the deteriorating global appetite and sluggish industrial activities. However, the surging domestic demand for gold and silver, despite various imports restrictions, has lead to an increase in India s merchandise imports, resulting in further widening of trade deficit. [US$ Bn.] Trends in Current Account Balance % % % 4.4% 4.5% % 3.9% Q1 FY Q2 FY Q3 FY Q4 FY Q1 FY Q2 FY Q3 FY Current Account Deficit CAD as a % of GDP [%] 8% 7% 6% 5% 4% 3% 2% 1% 0% Merchandise export grew marginally by 0.5% to US$ billion in Q3 FY as compared to US$ 71.4 billion in Q3 FY Merchandise imports grew by a robust 9.4% to US$ billion in Q3 FY as compared to US$ billion in Q3 FY The net service receipts grew by 9.2% in Q3 FY ; service exports grew by 2.0% to US$ 36.5 billion in Q3 FY mainly led by a decline in software services exports and receipts under travel and transportation, whereas, the service imports declined by 10.6% to US$ 18.9 billion in Q3 FY on the back of fall in the payments towards travel, transportation, financial and communication services. Net receipts under secondary income (private transfers) recorded a marginal decline of 3.4% during the quarter indicating a fall in net remittances from overseas Indians. The net outflow under primary income (investment income) increased to US$ 6.3 billion in Q3 FY mainly led by a fall in investment income receipts by 2.4% and a rise in payments by 49.6% in Q3 FY The net inflow under the capital account mainly consisting of official transfers, net acquisition of nonproduced non-financial assets and other capital receipts including migrant transfers was at a meager US$ 0.01 billion in Q3 FY The CAD during the third quarter was financed by the net inflow under the financial accounts. The financial account, which comprise of foreign direct investment, portfolio investment, loans availed by banks and corporates, external assistance and short term trade credits and advances, stood at a surplus of US$ 31.1 billion, higher than the US$ 23.9 billion in the September quarter and US$ 20.6 billion in the corresponding quarter a year ago. The surge in net inflow under financial account was driven by higher net portfolio investment, loans availed by banks and corporates, external assistance and short term trade credits and advances. Foreign Portfolio Investment rose to US$ 8.6 billion from US$ 1.8 billion in the corresponding quarter a year ago; however, the more stable inflows of FDI (net) almost halved to US$ 2.5 billion from US$ 5.0 billion in Q3 FY External Commercial Borrowings (ECBs) surged to US$ 3.1 billion as against a net repayment at US$ 0.8 billion in Q3 FY The Foreign Exchange Reserves rose marginally to US$ 0.8 billion in October-December 2012 quarter as against a drawdown by US$ 0.2 billion in the July September 2012 quarter.

3 Our View: India s Twin Deficit (Current Account Deficit and Fiscal Deficit) highlight the growing risk of macroeconomic and financial instability. During the April-February period of FY , the fiscal deficit of the Government was at Rs 5.07 lakh crore i.e. 97.4% of the budget estimates for the fiscal. With the fiscal deficit pegged at 4.8% of the GDP in FY , it is crucial for the Government to mobilize additional revenue sources as also build-up the existing ones to avoid a fiscal slippage on the back of increased expenditure. In a bid to narrow the trade deficit and restrict the burgeoning CAD, the Government has initiated various measures like deterring the gold imports by increasing the import duty and extending various exports incentives to boost outward shipments. Though these measures have led to narrowing of trade deficit in the month of February 2013 to US$ 14.9 billion aided by a slower growth in imports as against exports, sustaining the trend is a daunting task given the upheavals in global economy which would have an immediate bearing on India s trade. Though the CAD in the month under review was funded by a surge in inbound portfolio investment without drawing down on the foreign exchanges reserves, the indecisive nature of these inflows could trigger fresh round of pressure on the balance of payment position. This could exert significant pressure on the foreign exchanges reserves and will lead to further devaluation of the Indian Rupee. Furthermore, the trend will necessitate the Government to consider a comprehensive reform of the FDI regime to encourage foreign investors to invest in India. Additional, India s external sector continues to remain under stress. India s External Debt was valued at US$ billion as at end-december 2012, up 8.9% from March 2012, on account of long and short term components. The short-term debt (indicating trade-related credit) increased by 17.5% from March 2012 to US$ 91.9 billion as of December 31, The increasing ratio of short-term debt to total debt signifies an additional pressure on the foreign exchange reserves if these debts are not refinanced or equivalent inflows from other sources doesn't come through. These developments will further deteriorate the import cover which has been showing a declining trend with a persistent fall in foreign exchange reserves. - Prateusha Kumaran prateusha.kumaran@idbi.co.in

4 A SNAPSHOT OF INDIA S MACRO ECONOMIC INDICATORS Units FY2010 FY2011 FY2012 FY National Income GDP at Factor Cost (at constant price) Rs.crore (AE) GDP Growth Rate Per cent 8.39% 8.39% 6.48% 5.0% (AE) Agriculture & allied activities Per cent 0.80% 7.90% 3.60% 1.79% (AE) Industry Per cent 9.20% 9.20% 3.50% 3.12% (AE) Service Per cent 10.50% 9.80% 8.20% 6.58% (AE) Sectoral Share in GDP Agriculture & allied activities Per cent 14.64% 14.45% 14.10% 13.7% (AE) Industry Per cent 28.27% 28.23% 27.51% 27% (AE) Service Per cent 57.09% 57.32% 58.39% 59.3% (AE) Foodgrain Production Mn. tonnes (AE) 2. Inflation Rate (WPI) All commodities (wt ) Per cent 3.80% 9.56% 8.94% 7.46% * Primary articles (wt ) Per cent 12.66% 17.75% 9.80% 9.89% * Fuel & power (wt ) Per cent -2.11% 12.28% 13.96% 10.29% * Manufactured products (wt ) Per cent 2.22% 5.70% 7.26% 5.58% * 3. Index of Industrial Production (IIP) Overall IIP Per cent 5.28% 8.23% 2.89% 0.82% # Sector-wise Mining & Quarrying (wt ) Per cent 7.91% 5.23% -1.97% -1.76% # Manufacturing (wt ) Per cent 4.84% 8.95% 3.00% 0.78% # Electricity (wt ) Per cent 6.07% 5.56% 8.16% 4.55% # Use-Based Basic Goods (wt ) Per cent 4.75% 5.98% 5.48% 2.75% # Capital Goods (wt 88.25) Per cent 0.99% 14.75% -3.97% -9.24% # Intermediate goods (wt ) Per cent 6.03% 7.39% -0.62% 1.62% # Consumer goods (wt ) Per cent 7.66% 8.57% 4.37% 2.82% # 4. Fiscal Health Central govt. receipts Rs.crore Revenue receipts Rs.crore Net tax revenue Rs.crore Non-tax revenue Rs.crore Capital receipts (net) Rs.crore Central govt. Expenditure Rs.crore Non-plan expenditure Rs.crore Plan expenditure Rs.crore Central govt. gross fiscal deficit Rs.crore Central govt. revenue deficit Rs.crore Central govt. primary deficit Rs.crore

5 Units FY2010 FY2011 FY2012 FY Money & Banking Number of reporting SCBs Numbers ^ Total liabilities of SCBs Rs.crore Total assets of SCBs Rs.crore SCBs credit Rs.crore Food Credit Rs.crore Non-Food Credit Rs.crore SCBs credit-deposit ratio Per cent ^ M3 Rs.crore External Sector Export Growth (USD) Per cent % * Import Growth (USD) Per cent % * Current Account Balance / GDP Per cent %^^ Foreign Exchange Reserves USD billion * 7. Financial Market BSE Sensex Base = Market capitalisation on the BSE Rs.crore Central govt dated securities auctions Numbers $ Amount raised through dated securities Rs.crore $ Market rate of Rupee v/s US dollar Rs./US $ Market rate of Rupee v/s Pound Sterling Rs./Pound Sterling Market rate of Rupee v/s Euro Rs./Euro Market rate of Rupee v/s Japanese Yen Rs./Yen Source Economic Survey , CSO, Business Beacon, IDBI Bank Note: 1. AE- Advance Estimates; 2. * - April-Jan 2012; 3. #- April -Dec 2012; daily average; 5. $ - Apr12-Feb13; 6. ^ - as of Oct 2012; - as of Dec - as of Nov NA - Not Available 9. ^^ - April- September 2012 Disclaimer: This report/ material has been prepared by IDBI Bank Limited ( IDBI Bank ) and is only meant for the recipient for use as intended and not for circulation. This document and its contents are strictly confidential and may not be retransmitted, distributed, published, reproduced (in whole or in part) by any medium or in any form, or disclosed or made available by recipients to any other person. The information contained herein is collected from public domain or sources believed to be reliable and IDBI Bank has not independently verified it. 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