Balance of Payment – Favorable Trends Unlikely to Continue in FY09

India’s current account deficit in FY08 rose to 1.5% of GDP, the highest since FY96. Despite a major rise in services exports and private transfers, the strong import growth widened the current account deficit.

  • Due to higher oil prices, India’s CAD widened to US$17.4bn v/s US$ 9.7bn in FY07. This was slightly higher than our estimate of US$14.4bn.
  • Remittances (classified under invisibles) touched a record high of US$40.8bn
  • Capital flows led by strong portfolio flows (US$29.2bn) and loans (US$41.9bn were up by US$108bn.
  • Including valuation changes, the overall accretion to reserves was US$110.5bn v/s US$47.6bn in FY07

Incorporating the latest BoP data, Analysts expect India’s CAD to widen to US$45 to $50bn or 3.6% to 3.9% of GDP which is a serious concern on the macro front.