The Hindu Business Line : High cost of oil widens current account deficit

Chennai, Sept. 30 High cost oil widened the current account deficit or the gap between imports on the one hand and exports and ‘invisible’ earnings (comprising software services/remittances) of the country on the other, from about $1 billion in Q4 of 2007-08 to about $10.72 billion in the first quarter of the current fiscal. A year ago, current account deficit was at $6.3 billion. This was according to the Balance of Payments statement for the first quarter put out by the Reserve Bank of India.

India imports 70 per cent of its oil requirements. Notwithstanding some recent softening after the highs of $140/ barrel, oil prices remain at levels higher than seen last year. Average prices of oil during the first quarter this fiscal at $118/barrel were twice what they were a year earlier. Indian oil companies require almost 250 million dollars every day to fund their purchases of oil. Oil imports grew by 50.4 percent in the first quarter ended June compared with 23.9 percent in the first quarter of the earlier fiscal, the RBI statement said.

Imports up 33%

Exports in the first quarter grew at 22 per cent, a shade higher than the corresponding period in the previous fiscal. But imports grew faster at 33 per cent compared to a 21 per cent growth in the corresponding period of the previous fiscal.

The negative balance of trade of $31.57 billion was partially offset by the 30 per cent growth in ‘Invisibles’ (transactions that don’t pass through the customs gate such as earnings from software services and private transfers (remittance incomes) to about $20.85 billion.

Invisibles comprise mainly software earnings of $ 10.65 billion and remittance income of $12.18 billion during the first quarter.

The country’s capital account had a surplus of $12.95 billion in the last fiscal compared with a surplus of $17.50 billion in the previous fiscal. Foreign direct investments of $12.39 billion, portfolio investments of $40.76 billion and NRI deposits of $9.06 billion were major components of inflows.

External commercial borrowings of about $2.7 billion were, however, a sharp drop when compared to $8.37 billion in the corresponding period of the previous fiscal.