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India's balance of payments returns to surplus in April-June
22:40:51 IDT
Fri Sep 28, 2012 7:04pm IST
* India posts $0.5 billion balance of payment surplus April-June
* Figure was $5.7 bln deficit in previous quarter
* Current account deficit falls to $16.55 bln from all-time high of $21.76 bln
* Rupee hits 5-month high
* PM Singh under pressure to make more reforms (Adds fresh quotes, background)
By Neha Dasgupta
MUMBAI, Sept 28 (Reuters) - India's current account deficit shrank by 24 percent in the April-June period from an all time high in the previous quarter, narrowly returning the balance of payments to surplus after an earlier worrying slide towards dangerous territory.
The Reserve Bank of India data released on Friday showed India ran a balance of payments surplus of $0.5 billion in the April-June quarter, versus a deficit of $5.7 billion in the previous three months. In the June quarter last year, India had posted a $5.4 billion surplus.
The current account deficit fell to $16.55 billion in the June quarter, down from an all-time high of $21.76 billion in the March quarter, and also below the $17.54 billion deficit posted in the June quarter last year.
The reduced deficits will be some relief for Prime Minister Manmohan Singh, whose government was reduced to a minority last week by the withdrawal of a coalition ally in protest at a package of reforms aimed at shoring up finances, cutting fuel subsidies and opening the economy further to foreign investment.
Markets were buoyed by the raft of reforms, but India remains in danger of losing its investment grade credit rating and analysts said the government remained under intense pressure to do more.
Singh, 80, had been seen at risk of letting India slide into a balance of payments crisis, ruining a reputation built two decades ago as the finance minister who led the country out of a payments crisis by liberalising the economy.
But with more action needed to pull the economy round, analysts worry whether his minority government can muster the resolve to take further bold steps, notably to control the fiscal deficit, or even to implement the already announced reforms with a general election due by 2014.
"While the first set of corrective measures have stabilised the market sentiment and the rupee, continued momentum in reforms is a must to revive the real growth prospects and the external sector indicators," Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai, told Reuters.
The rupee rose to a near five-month high of 52.4950 to the dollar on Friday, marking a strong recovery from a record low of 57.32 hit in late June due to the deteriorating external deficits. Strong dollar inflows worth $3.3 billion so far in September alone have helped the rupee's recovery.
SLOWDOWN
Unfortunately, a key reason for the reduced deficits, a fall imports, reflected the slowdown an economy that grew at its slowest in nearly three years in the June quarter, with 5.5 percent growth from a year earlier.
"A sharper decline in imports primarily reflects a severe slowdown in real sector activity. This combined with moderation in foreign direct investment (FDI) inflows and the institutional borrowings (by banks and non-banks) signal a significant deterioration in the domestic investment climate," Nitsure said. "The only positive feature is continued buoyancy in private transfer receipts."
But measures taken to curb Indians' love of gold also played a part as the trade deficit fell to $42.5 billion in the June quarter, down from around $51.6 billion in the March quarter and $45 billion in the June quarter last year.
"While decline in non-oil non-gold imports largely reflects slowdown in economic activity, sharp decline in import of precious metal also seems to have been caused by various policy measures to discourage such imports, including increase in custom duty," the RBI said in its report.
The financial and capital account stood at a surplus of $16.8 billion in June quarter, lower than $23.8 billion a year ago.
"The capital account is stable on the quarter and is not showing any sharp appreciation," said Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai.
"The data does not provide much comfort for the current account and I stick to my forecast of 3.6 percent (of GDP) deficit for this fiscal year."
The prime minister's economic advisory council forecast the current account deficit would narrow to $67 billion or 3.6 pct of the GDP in 2012/13 compared to 4.2 percent in the previous year.
India's wide current account deficit and weak balance of payments, along with slowing economic growth and sluggish policy actions, were key reasons behind Standard & Poor's and Fitch Ratings' cut in India's credit rating outlook to 'negative' earlier this year.
The country is rated at the lowest investment grade by all three major credit agencies. (Additional reporting by Swati Bhat; Editing by Simon Cameron-Moore)
UPDATE 2-India's balance of payments returns to surplus in April-June | Reuters
22:40:51 IDT
Fri Sep 28, 2012 7:04pm IST
* India posts $0.5 billion balance of payment surplus April-June
* Figure was $5.7 bln deficit in previous quarter
* Current account deficit falls to $16.55 bln from all-time high of $21.76 bln
* Rupee hits 5-month high
* PM Singh under pressure to make more reforms (Adds fresh quotes, background)
By Neha Dasgupta
MUMBAI, Sept 28 (Reuters) - India's current account deficit shrank by 24 percent in the April-June period from an all time high in the previous quarter, narrowly returning the balance of payments to surplus after an earlier worrying slide towards dangerous territory.
The Reserve Bank of India data released on Friday showed India ran a balance of payments surplus of $0.5 billion in the April-June quarter, versus a deficit of $5.7 billion in the previous three months. In the June quarter last year, India had posted a $5.4 billion surplus.
The current account deficit fell to $16.55 billion in the June quarter, down from an all-time high of $21.76 billion in the March quarter, and also below the $17.54 billion deficit posted in the June quarter last year.
The reduced deficits will be some relief for Prime Minister Manmohan Singh, whose government was reduced to a minority last week by the withdrawal of a coalition ally in protest at a package of reforms aimed at shoring up finances, cutting fuel subsidies and opening the economy further to foreign investment.
Markets were buoyed by the raft of reforms, but India remains in danger of losing its investment grade credit rating and analysts said the government remained under intense pressure to do more.
Singh, 80, had been seen at risk of letting India slide into a balance of payments crisis, ruining a reputation built two decades ago as the finance minister who led the country out of a payments crisis by liberalising the economy.
But with more action needed to pull the economy round, analysts worry whether his minority government can muster the resolve to take further bold steps, notably to control the fiscal deficit, or even to implement the already announced reforms with a general election due by 2014.
"While the first set of corrective measures have stabilised the market sentiment and the rupee, continued momentum in reforms is a must to revive the real growth prospects and the external sector indicators," Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai, told Reuters.
The rupee rose to a near five-month high of 52.4950 to the dollar on Friday, marking a strong recovery from a record low of 57.32 hit in late June due to the deteriorating external deficits. Strong dollar inflows worth $3.3 billion so far in September alone have helped the rupee's recovery.
SLOWDOWN
Unfortunately, a key reason for the reduced deficits, a fall imports, reflected the slowdown an economy that grew at its slowest in nearly three years in the June quarter, with 5.5 percent growth from a year earlier.
"A sharper decline in imports primarily reflects a severe slowdown in real sector activity. This combined with moderation in foreign direct investment (FDI) inflows and the institutional borrowings (by banks and non-banks) signal a significant deterioration in the domestic investment climate," Nitsure said. "The only positive feature is continued buoyancy in private transfer receipts."
But measures taken to curb Indians' love of gold also played a part as the trade deficit fell to $42.5 billion in the June quarter, down from around $51.6 billion in the March quarter and $45 billion in the June quarter last year.
"While decline in non-oil non-gold imports largely reflects slowdown in economic activity, sharp decline in import of precious metal also seems to have been caused by various policy measures to discourage such imports, including increase in custom duty," the RBI said in its report.
The financial and capital account stood at a surplus of $16.8 billion in June quarter, lower than $23.8 billion a year ago.
"The capital account is stable on the quarter and is not showing any sharp appreciation," said Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai.
"The data does not provide much comfort for the current account and I stick to my forecast of 3.6 percent (of GDP) deficit for this fiscal year."
The prime minister's economic advisory council forecast the current account deficit would narrow to $67 billion or 3.6 pct of the GDP in 2012/13 compared to 4.2 percent in the previous year.
India's wide current account deficit and weak balance of payments, along with slowing economic growth and sluggish policy actions, were key reasons behind Standard & Poor's and Fitch Ratings' cut in India's credit rating outlook to 'negative' earlier this year.
The country is rated at the lowest investment grade by all three major credit agencies. (Additional reporting by Swati Bhat; Editing by Simon Cameron-Moore)
UPDATE 2-India's balance of payments returns to surplus in April-June | Reuters
