The Hindu Business Line : Capital flows lift surplus in balance of payments

Mumbai, March 31 The country’s net foreign exchange earnings from software and other services rose by nearly 50 per cent in the quarter ended December 2007 compared to the same period last year, the Reserve Bank of India data on Balance of Payments released here on Monday, revealed.

Such services grew from $6.167 billion this time last year to $9.270 billion during this period, with net software exports alone contributing $2.40 billion to the increase.

Keeping pace with software service exports are private transfers from individuals (principally non-resident Indians abroad) and corporate entities whose net inflows of foreign exchange showed a similar near 50 per cent rise.

These inflows added another $11 billion in the third quarter of the fiscal 2007-08 compared to their contribution of roughly $7.25 billion in the previous year.

While India continues to service (dividends/interest charges) overseas investments into the country by an increasing order ($4.4 billion — up roughly ten per cent over the same quarter in 2006-07) in the latest quarter for which the data has been released, its investments abroad too are beginning to pay.

Such investments fetched nearly $3.5 billion in the third quarter compared to $2.2 billion last year.

But the growth in such transactions as above — what the RBI calls the ‘Invisibles’ as opposed to trade in merchandise that you can touch and feel — was still not enough to compensate for the huge outgo of foreign exchange on net imports which added an extra outgo of nearly $9 billion to the $16.5 billion in the third quarter of 2006-07.

Portfolio investments by foreign investors saw one of the largest increases in recent times with inflows in the latest quarter going up by as much as $14.561 billion as against net inflow of only $ 3.562 the same time last year.

Less direct investments

Direct investments, however, saw a modest fall during this period with net inflows on this count registering only $7.189 billion as against $9.723 billion.

Foreign corporates are not, however, seeing any dramatic rise in profits reinvested in their businesses. Earnings retained within businesses showed only a modest increase at $1.492 billion as against $1.365 billion in the two quarters under reference. Indian corporate ardour for overseas investments was somewhat muted with equity investments in the current quarter being lower at roughly $3.5 billion compared to over $65 billion invested in the same quarter last year.

Commercial banks liquidated some of their overseas investments in the third quarter of this year compared to the same period last year. As against a net outgo of nearly four billion last year, the third quarter of this year actually saw a net inflow of nearly $1.7 billion. The net higher capital flows pushed up overall surplus on external transactions by nearly three-fold, with the Balance of Payment surplus registering a sum of $26.738 billion in the December quarter of the current year compared to a mere $7.5 billion last year.

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