The Hindu Business Line : Current account deficit widens to $7.6 b in Q2

THE country's current account deficit has widened to $7.66 billion in the quarter ended September 30, 2005, from $3.5 billion in the corresponding quarter of the previous fiscal, according to the Reserve Bank of India.

The trade deficit for the quarter under question widened to $16.21 billion from $9.63 billion in the corresponding period the previous year. "Strong import demand led to steady expansion in trade deficit," said a statement from the central bank.

Imports accounted for $38.97 billion during the quarter, while exports amounted to $22.77 billion.

Import payments recorded a growth of 37 per cent. Oil imports were up by 56 per cent due to spiralling oil prices. Non-oil imports increased by 30 per cent, reflecting the growth in industrial activity.

Merchandise exports, according to the RBI, "showed a deceleration in growth compared with a year ago mainly due to some seasonal deceleration in manufactured goods exports."

Net invisibles positive: However, net invisibles were positive at $8.548 billion, up from $6.129 billion for the second quarter; this served to bring down the current account deficit.

According to the apex bank, sustained growth in travel earnings and continuing pace of business, professional services and remittances led to a growth of 62 per cent in invisible receipts in the second quarter.

There was a steady expansion in invisible payments as well, reflected in the continuing pace of outbound traffic from India, rising payments towards transportation, strong domestic demand for business related services and higher investment income payments, said the RBI.

The capital account gained $12.92 billion in the three months ended September 30, 2005, compared with $2.87 billion in the same quarter last year.

The RBI indicated that the net capital flows were higher in the second quarter compared to the first quarter as well as the corresponding period in the previous year.

The major contributors to the rise in capital flows were portfolio investments, external commercial borrowings, NRI deposits and overseas borrowing by banks.

First half figures: For the first half of the fiscal, India's current account deficit has been recorded at $12.956 billion, compared to $485 million in the same period last year.

The net capital flows into the country increased to $18.7 billion during the half-year period, from $7.3 billion during the previous half year. The RBI said the net capital flows remained dominated by foreign investment flows which went into manufacturing, business and computer services.

The central bank said the turnaround in FII inflows that occurred in June 2005 and continued through September 2005, were on the back of strong growth expectations and corporate performance.