For the first time since the first quarter of 1998-99, India's capital account balance turned negative during the third quarter of 2008-09 mainly due to net outflows under portfolio investment, banking capital and short-term trade credit. In simple terms, it means India witnessed an outflow of funds through various channels during the period. Moreover, the current account deficit -- the difference between exports and imports — at $14.6 billion during Q3 of 2008-09 was the highest quarterly deficit since 1990. Capital account balance — the net result of public and private international investment including FDI, FII and bank accounts flowing in and out of a country — turned negative showing outflows of $ 3.7 billion during the Q3 of 2008-09 for the first time since Q1 of 1998-99 mainly due to net outflows under portfolio investment, banking capital and short-term trade credit, according to the Reserve Bank of India.
There were net inflows at $ 31.0 billion during Q3 of 2007-08, thanks to high FDI and FII investments. But the tide turned unfavourable since October 2008 as the global financial crisis and the market turmoil led to outflows. The RBI said gross capital inflows to India during Q3 of 2008-09 amounted to $70.0 billion ($127.3 billion in Q3 of 2007-08) as against gross outflows from India at $73.6 billion ($ 96.3 billion in Q3 of 2007-08). “Other components of the capital account which recorded a fall during the quarter were inflows and outflows under foreign direct investment and external commercial borrowings, while inflows under short-term trade credit also declined during the quarter,” it said. “On account of large trade deficit and with moderate increase in net invisibles, the current account deficit rose sharply to $ 14.6 billion in Q3 of 2008-09 ($ 4.5 billion in Q3 of 2007-08). This level of CAD was the highest quarterly deficit since 1990,” the RBI said.
Private transfer receipts, comprising mainly remittances from Indians working overseas, declined marginally from $ 10.93 bn to $ 10.54 bn during Q3 of 2008-09. Software services receipts, on the other hand, increased by 11.8 per cent during the quarter. Private transfers are mainly in the form of inward remittances from Indian workers abroad for family maintenance, local withdrawal from NRI rupee deposits, gold and silver brought through passenger baggage and personal gifts/donations to charitable/religious institutions.
According to the RBI, private transfer receipts increased to $ 36.9 billion in April-December 2008 from $ 29.3 billion in the corresponding period of the previous year Invisibles payments also recorded a marginal negative growth of 2.1 per cent during Q3 of 2008-09 mainly led by sharp decline in payments under travel, software and business services account. There was also a marginal decline in payments under investment income in the form of interest payments and dividends.
There were net inflows at $ 31.0 billion during Q3 of 2007-08, thanks to high FDI and FII investments. But the tide turned unfavourable since October 2008 as the global financial crisis and the market turmoil led to outflows. The RBI said gross capital inflows to India during Q3 of 2008-09 amounted to $70.0 billion ($127.3 billion in Q3 of 2007-08) as against gross outflows from India at $73.6 billion ($ 96.3 billion in Q3 of 2007-08). “Other components of the capital account which recorded a fall during the quarter were inflows and outflows under foreign direct investment and external commercial borrowings, while inflows under short-term trade credit also declined during the quarter,” it said. “On account of large trade deficit and with moderate increase in net invisibles, the current account deficit rose sharply to $ 14.6 billion in Q3 of 2008-09 ($ 4.5 billion in Q3 of 2007-08). This level of CAD was the highest quarterly deficit since 1990,” the RBI said.
Private transfer receipts, comprising mainly remittances from Indians working overseas, declined marginally from $ 10.93 bn to $ 10.54 bn during Q3 of 2008-09. Software services receipts, on the other hand, increased by 11.8 per cent during the quarter. Private transfers are mainly in the form of inward remittances from Indian workers abroad for family maintenance, local withdrawal from NRI rupee deposits, gold and silver brought through passenger baggage and personal gifts/donations to charitable/religious institutions.
According to the RBI, private transfer receipts increased to $ 36.9 billion in April-December 2008 from $ 29.3 billion in the corresponding period of the previous year Invisibles payments also recorded a marginal negative growth of 2.1 per cent during Q3 of 2008-09 mainly led by sharp decline in payments under travel, software and business services account. There was also a marginal decline in payments under investment income in the form of interest payments and dividends.
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