The Hindu Business Line : Services receipts help reduce current a/c gap

Chennai March 30 A doubling of receipts due to services rendered by software companies, tourism earnings and remittances from Indians working abroad helped India reduce its current account deficit for the third quarter of this fiscal. Current account measures the quantum of both trade and services that the country has with the rest of the world.

According to statistics put out by the Reserve Bank of India, the current account deficit was at $3 billion for the third quarter ended December 31, 2006, compared with $4.7 billion in the corresponding period in the previous fiscal. For the nine-month period covering (April-December 2006), the current account deficit was at about $12 billion, at the same level as in the previous corresponding period.

The trade balance continued to be negative as India imported more goods than it exported. Imports during the quarter were worth $48 billion while the country exported goods worth $29 billion.

A slowdown in exports, principally in manufactured goods, and sharp growth in oil imports as well as other products such as capital goods, gems, precious stones, gold and other metallic ores contributed to the widening gap between exports and imports.

Exports grew 14 per cent in this quarter compared with 21 per cent in the corresponding quarter of the previous fiscal, while imports grew 25 per cent in this quarter as against 17 per cent in the corresponding earlier period.

Millennium Deposit

But receipts from services, which doubled to about $16 billion for the quarter ended December 31, 2006, compared with the $8 billion in the corresponding period, helped reduce the current account deficit to $3 billion.

Net software earnings for the 9-month period (April-December 2006) was at about $20 billion compared with about $15.5 billion in the corresponding 9-month period of the previous fiscal. Software earnings accounted for half the receipts on the "invisibles" head in the current account of the country.

Capital flows (comprising mainly of External commercial borrowings (ECBs), NRI deposits, foreign direct investment and portfolio inflows) into the country rose to $10.5 billion during this quarter compared with less than $0.1 billion in the corresponding period. However, the low figure of the previous fiscal is explained by the outflow of $5.5 billion that took place in December 2005 to repay the Millennium Deposit of the State Bank of India.