The Hindu Business Line : Trade deficit widens to $69 b in April-Sept

Mumbai, Dec. 31 The country’s trade deficit widened significantly in the first six months of the current financial year due to sharp increase in oil imports, which reflected the impact of increased oil prices, according to the Balance of Payment data, released on Wednesday.

Although the invisible surplus increased due to higher inward remittances from overseas and software services exports, the current account deficit also increased due to the higher trade deficit.

Net capital account inflows into the country were lower as portfolio investment and FII inflows witnessed large outflows, against inflows last year.

India’s trade deficit increased significantly to $69.18 billion in the six-month period from April to September 2008, against $43.2 billion last year, on account of higher oil imports.

According to the Balance of Payments data, import payments grew by 43.2 per cent during the six-month period as compared with 21.5 per cent in the corresponding period last year.

Oil imports

While oil imports recorded a significant growth of 59.2 per cent (17.1 per cent), non-oil imports showed a relatively modest growth of 29.4 per cent (33.2 per cent).

The sharp increase in oil imports reflected the impact of increasing oil price of the Indian basket of international crude, which increased to an average of $116.5 per barrel from $69.3 per barrel last year.

The widening trade deficit also led to higher current account deficit at $22.3 billion, against $11 billion last year.

Net Invisibles

Net invisibles stood at $46.8 billion ($32.3 billion), mainly led by higher growth in private transfers and steady growth in software exports.

The net capital inflows during the six-months fell to $19.9 billion, from $50.9 billion last year. Under net capital flows, all components except Foreign Direct Investment and NRI deposits, showed decline.

Net FDI was at $14.6 billion ($4.9 billion). According to the RBI press release, the inward FDI into India was high on account of the continuing pace of expansion of domestic activities, positive investment climate and continuing liberalisation measures to attract FDI.

Portfolio investment, mainly comprising foreign institutional investments and America depository receipts, saw large net outflows of $5.5 billion, against net inflows of $18.4 billion last year, due to large sales of equities by FIIs in the stock market.

Reserves Accretion

The decline in foreign exchange reserves, excluding valuation, was $2.5 billion as against accretion to the reserves of $40.4 billion last year.

Taking into account valuation loss, the decline in foreign exchange reserves was even higher at $23.4 billion, as against an accretion of $48.6 billion last year, said the RBI press release.

As at the end of September 2008, outstanding foreign exchange reserves stood at $286.3 billion. Valuation loss, reflecting the depreciation of major currencies against the dollar, accounted for $20,888 million in total reserves, as against a valuation gain of $8,147 million in the corresponding period of previous year.

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