The CAD–GDP ratio reached a historic high of 5.4 per cent in Q2 of 2012-13, heightening
concerns about the sustainability and financing of CAD. Worsening trade deficit and slower
growth in services exports were the major factors behind the sharp rise in CAD. Weak external
demand, which affected merchandise exports adversely, combined with continuing high imports
of POL and gold, resulted in deterioration of the trade balance in Q3 of 2012-13. Despite the
policy initiatives taken by the government, export revival is contingent on economic recovery
in advanced economies as well as EMDEs. Even though capital flows have been sufficient to
finance CAD for the time being, the volatility therein can put pressure on the external sector.
Clearly, it is imperative to lower the CAD, while ensuring in the interim its prudent financing.
Weak external demand continues to affect
merchandise exports adversely
III.1 India’s export performance continued
to show the adverse impact of low growth
and uncertainty in the advanced as well as
major Emerging Market and Developing
Economies (EMDEs). The downturn in the
global manufacturing cycle in both advanced
economies and EMDEs has impacted the
overall world trade volume, which is also
reflected in negative export growth of major
EMDEs, including India, Brazil, Russia, South
Africa and Indonesia (Chart III.1). Even though
the export growth of China remains positive, it
has also decelerated in the recent period.
Despite policy actions, revival of export
growth remains uncertain
III.2 India’s subdued exports performance,
which began in H2 of 2011-12, showed
further deterioration during 2012-13 so far.
Since the outlook for global growth remains
weak, it is unlikely that exports will reach
even the previous year’s level. Commoditywise
data show that growth in exports of
engineering goods, petroleum products, textile
products, gems & jewellery and chemicals
& related products was severely affected
because demand conditions in key markets
such as the US and Europe continued to
remain sluggish. Demand from new export
destinations explored under diversification efforts also weakened. For instance, apart
from export growth to developed countries,
export growth to developing countries has
also either decelerated or declined in recent
quarters (Chart III.2). During April-November
2012, EU accounted for 27.4 per cent of total
decline in merchandise exports, followed by
Singapore (21.0 per cent), China (20.7 per
cent), Hong Kong (4.8 per cent) and Indonesia
(4.6 per cent). Lower growth in export-oriented
Asian economies caused by setbacks to global
recovery has clearly weighed on India’s
external demand from these economies.
III.3 In view of the lacklustre performance of
the exports sector, the government announced
export promotion measures on December
26, 2012. These include (i) the extension
of the interest subvention scheme for select employment-oriented sectors up to end-March
2014, (ii) the introduction of a pilot scheme
of 2 per cent interest subvention for project
exports through EXIM Bank for countries
of the SAARC region, Africa and Myanmar,
(iii) broadening the scope of the Focus Market
Scheme, Special Focus Market Scheme and
Market-Linked Focus Product Scheme and
(iv) incentives for incremental exports to
the US, EU and countries of Asia during the
period January–March 2013 over the base
period. To enhance the flow of credit to the
export sector, the Reserve Bank introduced a
US dollar-rupee swap facility for scheduled
banks to support incremental Pre-shipment
Export Credit in Foreign Currency (PCFC)
by banks on January 14, 2013. Despite these
measures, quick recovery in exports to major
trading partners may not take place unless economic activity in both advanced economies
and EMDEs picks up significantly.


Continued high imports of POL and gold
may widen India’s trade deficit further
III.4 Import growth has surged since
September 2012, mainly due to a pick-up
in the quantum of POL (Chart III.3). With
the uptrend in the international price of gold
in recent months, gold imports stayed at an
elevated level in recent months. On the other
hand, non-oil non-gold imports registered a
decline, reflecting a slowdown in domestic
economic activity.
III.5 With imports growth turning positive
from September 2012 and exports growth
remaining subdued, concerns regarding a
deteriorating trade deficit have been reinforced.
During April–December 2012, the trade deficit
was 7.2 per cent higher than that in April–
December 2011 (Table III.1). Going forward,
apart from global and domestic growth
conditions, the trend in POL and gold imports
will be critical determinants of India’s overall
trade deficit.
III.6 Policy attempt so far has been to deftly
balance the genuine interests of the gold
business, as also the need of the savers to hedge
against inflation, against the overwhelming
need to dampen gold imports with a view to
preserving current account and macro-financial stability. The gold demand in recent years
has also picked up for speculative purposes.
Against this backdrop, the Reserve Bank had
constituted a Working Group to Study the
Issues Related to Gold and Gold Loans by
NBFCs in India (Chairman: Shri K.U.B. Rao).
The Group, in its report, noted that high gold
imports have implications for external sector
vulnerability. The Group has recommended
measures to contain gold demand like
introduction of new gold-backed financial
products, supply management measures such
as channelising the existing supply of scrap
gold, and the introduction of tax incentives
on gold-related instruments as well as steps to
increase the monetisation of gold. The Reserve
Bank placed the report of the Group on its
website on January 2, 2013 for comments from
stakeholders and the public.

Table III.1: India’s Merchandise Trade |
(US$ billion) |
Item |
April–March |
April–December |
2010-11 (R) |
2011-12 (R) |
2011-12 (R) |
2012-13 (P) |
Value |
Growth (%) |
Value |
Growth (%) |
Value |
Growth (%) |
Value |
Growth (%) |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
Exports |
251.1 |
40.5 |
306.0 |
21.8 |
226.6 |
29.6 |
214.1 |
-5.5 |
of which: Oil |
41.5 |
47.1 |
56.0 |
35.1 |
42.3 |
49.5 |
40.0 |
-5.4 |
Non-oil |
209.7 |
39.3 |
249.9 |
19.2 |
184.3 |
25.8 |
174.1 |
-5.5 |
Gold |
6.1 |
39.6 |
6.7 |
10.8 |
5.0 |
31.6 |
4.7 |
-6.0 |
Non-Oil Non-Gold |
203.6 |
39.2 |
243.2 |
19.5 |
179.3 |
25.6 |
169.4 |
-5.5 |
Imports |
369.8 |
28.2 |
489.3 |
32.3 |
363.9 |
35.2 |
361.3 |
-0.7 |
of which: Oil |
106.0 |
21.6 |
155.0 |
46.2 |
111.0 |
47.6 |
125.4 |
13.0 |
Non-oil |
263.8 |
31.1 |
334.4 |
26.7 |
252.9 |
30.4 |
235.9 |
-6.7 |
Gold |
40.5 |
41.6 |
56.3 |
38.9 |
41.7 |
46.3 |
37.8 |
-9.4 |
Non-Oil Non-Gold |
223.3 |
29.4 |
278.0 |
24.5 |
211.2 |
27.6 |
198.1 |
-6.2 |
Trade Deficit |
-118.6 |
|
-183.4 |
|
-137.3 |
|
-147.2 |
|
of which: Oil |
-64.5 |
|
-98.9 |
|
-68.7 |
|
-85.4 |
|
Non-oil |
-54.1 |
|
-84.4 |
|
-68.6 |
|
-61.8 |
|
Non-Oil Non-Gold |
-19.7 |
|
-34.8 |
|
-31.9 |
|
-28.7 |
|
Memo : |
|
|
|
|
|
|
|
|
Trade Deficit/GDP (in per cent) |
|
-7.0 |
|
-10.0 |
|
-10.1 |
|
-11.7 |
R : Revised
P : Provisional |
III.7 Besides enhancing the customs duty
from 4 per cent to 6 per cent on gold imports,
the government has proposed to unfreeze or
release a part of the gold physically held by
mutual funds under Gold ETFs and enable them to deposit the gold with banks under the Gold
Deposit Scheme. The minimum quantity as
well as minimum tenure of gold deposits (from
3 years to 6 months) have been reduced.
Concerns about sustainability of CAD
heighten as the CAD–GDP ratio reaches
a historic high in Q2 of 2012-13
III.8 India’s current account deficit (CAD)
increased further in Q2 of 2012-13 mainly
due to the worsening trade deficit, decelerated
growth in net export of services and higher
outflows under primary income (Table III.2).
The CAD–GDP ratio at 5.4 per cent is not only
unsustainable, but is also the highest-ever peak
level. Early indications are that in Q3 of 2012-
13, CAD as a percentage of GDP may increase
further from this peak. Subdued growth
conditions in major advanced economies seem
to have impacted growth in India’s export of
software services in recent quarters. However,
results of major IT firms for Q3 of 2012-13
suggest some improvement in their dollar
revenues. Even though global IT spending is
projected to increase by 4.2 per cent in 2013, uncertainty regarding global recovery continues
to be one of the downward risks for India’s
software exports. Unless global economic and
trade conditions improve significantly and
boost India’s export of goods and services, the
high CAD may continue to be challenging.
Table III.2: Major Items of India’s Balance of Payments |
(US $ billion) |
|
2011-12
(PR) |
2011-12 |
2012-13 |
Q1
(PR) |
Q2
(PR) |
Q3
(PR) |
Q4
(PR) |
Q1
(PR) |
Q2
(P) |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
1. Goods Exports |
309.8 |
78.8 |
79.6 |
71.5 |
80.0 |
76.7 |
69.8 |
2. Goods Imports |
499.5 |
123.7 |
124.1 |
120.1 |
131.7 |
119.0 |
118.2 |
3. Trade Balance (1–2) |
-189.7 |
-44.9 |
-44.5 |
-48.6 |
-51.7 |
-42.3 |
-48.3 |
4. Services Exports |
140.9 |
33.7 |
32.3 |
37.3 |
37.7 |
34.8 |
34.8 |
5. Services Imports |
76.9 |
17.4 |
18.3 |
21.1 |
20.0 |
20.8 |
19.2 |
6. Net Services (4–5) |
64.0 |
16.3 |
14.0 |
16.1 |
17.7 |
14.0 |
15.7 |
7. Goods & Services Balance (3+6) |
-125.7 |
-28.6 |
-30.5 |
-32.5 |
-34.0 |
-28.3 |
-32.8 |
8. Primary Income (Net) |
-16.0 |
-3.6 |
-4.0 |
-3.8 |
-4.6 |
-4.9 |
-5.6 |
9. Secondary Income (Net) |
63.5 |
14.8 |
15.6 |
16.2 |
16.9 |
16.8 |
16.1 |
10. Net Income (8+9) |
47.5 |
11.2 |
11.6 |
12.4 |
12.3 |
11.9 |
10.5 |
11. Current Account Balance (7+10) |
-78.2 |
-17.4 |
-18.9 |
-20.2 |
-21.7 |
-16.4 |
-22.3 |
12. Capital Account Balance |
-0.1 |
-0.3 |
0.2 |
0.1 |
-0.2 |
-0.2 |
-0.3 |
13. Financial Account Balance |
80.7 |
18.7 |
19.0 |
20.6 |
22.4 |
15.7 |
24.2 |
of which: Change in Reserves |
12.8 |
-5.4 |
-0.3 |
12.8 |
5.7 |
-0.5 |
0.2 |
14. Errors & Omissions (11+12–13) |
-2.4 |
-0.9 |
-0.4 |
-0.5 |
-0.6 |
1.0 |
-1.6 |
Memo: As a ratio to GDP (in per cent) |
|
|
|
|
|
|
|
15. Trade Balance |
-10.3 |
-9.8 |
-9.9 |
-10.7 |
-10.6 |
-10.0 |
-11.7 |
16. Net Services |
3.5 |
3.6 |
3.1 |
3.5 |
3.6 |
3.3 |
3.8 |
17. Net Income |
2.6 |
2.4 |
2.6 |
2.7 |
2.5 |
2.8 |
2.5 |
18. Current Account Balance |
-4.2 |
-3.8 |
-4.2 |
-4.4 |
-4.5 |
-3.9 |
-5.4 |
19. Capital and Financial Account, Net (Excl. changes in reserves) |
3.7 |
5.2 |
4.4 |
1.7 |
3.4 |
3.8 |
5.7 |
Note: Total of sub-components may not tally with aggregate due to rounding off.
PR: PartiallyRevised. P: Preliminary. |
Strong capital flows facilitate financing
of CAD
III.9 BoP statistics shows that improved
capital flows were about adequate to finance
an expanding CAD during Q2 of 2012-13, as
evident from only a marginal drawdown of
foreign exchange reserves (Table III.3).
III.10 While net inflows under FDI moderated
somewhat during April-November 2012, net
inflows by foreign institutional investors (FII)
have shown a significant uptrend. Net FII inflows
during 2012-13 (up to January 18) at US$ 18.8
billion were significantly higher than during
the corresponding period of the previous year
(US$ 7.6 billion), thus providing temporary
comfort for financing of CAD (Table III.4).
III.11 Besides improved global liquidity and
sentiment, robust FII inflows were largely
the outcome of improved perception about
the domestic economy, driven by recent
reforms announced by the government since
September 2012. These reforms include, inter
alia, liberalised FDI norms for the retail,
insurance and pension sectors, a roadmap
for fiscal consolidation and an increase in
FII limits in the corporate and government
debt markets. The FII investment limits in
government securities and corporate bonds
were raised by US$ 5 billion each, taking
the total investment limit in domestic debt
(including corporate debt for infrastructure) to
US$ 75 billion. While the increased limit may
enhance debt inflows, they do not provide a
solution to CAD financing on a sustainable
basis.
III.12 Much of the recent FII investment
under the G-sec limits has flown into short
term T-bills, enhancing the refinancing risks to external debt. On the other hand, a
range-bound currency after a bout of
depreciation has made the Indian equity
market attractive for FIIs. Going forward, the
implementation and acceleration in domestic reforms would be critical for sustained equity
flows to the economy. Though the risk aversion
in global markets declined during the previous
quarter, the flows could be volatile given the
euro area risks.
Table III.3: Disaggregated Items of Financial Account |
(US$ billion) |
|
2011-12(PR) |
2011-12 |
2012-13 |
Q1 (PR) |
Q2 (PR) |
Q3 (PR) |
Q4 (PR) |
Q1 (PR) |
Q2 (P) |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
1. Direct Investment (net) |
22.1 |
9.3 |
6.5 |
5.0 |
1.4 |
3.9 |
8.9 |
1.a Direct Investment to India |
33.0 |
12.4 |
9.5 |
6.9 |
4.2 |
5.9 |
10.3 |
1.b Direct Investment by India |
-10.9 |
-3.1 |
-3.0 |
-1.9 |
-2.9 |
-2.0 |
-1.4 |
2. Portfolio Investment (net) |
16.6 |
2.3 |
-1.4 |
1.8 |
13.9 |
-2.0 |
7.6 |
2.a Portfolio Investment in India |
16.8 |
2.5 |
-1.6 |
1.9 |
14.1 |
-1.7 |
7.9 |
2.b Portfolio Investment by India |
-0.2 |
-0.2 |
0.2 |
-0.05 |
-0.2 |
-0.3 |
-0.3 |
3. Financial Derivatives & Employee Stock Options |
– |
– |
– |
– |
– |
-0.5 |
-0.3 |
4. Other Investment (net) |
29.2 |
12.6 |
14.2 |
1.0 |
1.4 |
14.8 |
7.9 |
4.a Other equity (ADRs/GDRs) |
0.6 |
0.3 |
0.2 |
0.1 |
0.03 |
0.1 |
0.1 |
4.b Currency and deposits |
12.1 |
1.2 |
3.1 |
3.2 |
4.6 |
6.4 |
3.5 |
Deposit-taking corporations, except the central bank: (NRI Deposits) |
11.9 |
1.2 |
2.8 |
3.3 |
4.7 |
6.6 |
2.8 |
4.c Loans* |
16.8 |
14.9 |
9.5 |
-7.7 |
-0.03 |
3.5 |
3.3 |
4.c.i Loans to India |
15.7 |
14.9 |
8.9 |
-8.1 |
-0.02 |
3.4 |
3.6 |
Deposit-taking corporations, except the central bank |
4.1 |
11.5 |
3.9 |
-8.7 |
-2.6 |
3.0 |
2.0 |
General government (External Assistance) |
2.5 |
0.4 |
0.3 |
1.4 |
0.3 |
0.02 |
0.1 |
Other sectors (ECBs) |
9.1 |
3.0 |
4.7 |
-0.8 |
2.3 |
0.4 |
1.4 |
4.c.ii Loans by India |
1.0 |
-0.02 |
0.6 |
0.5 |
-0.01 |
0.1 |
-0.3 |
General government (External Assistance) |
-0.2 |
-0.04 |
-0.04 |
-0.04 |
-0.04 |
-0.1 |
-0.1 |
Other sectors (ECBs) |
1.2 |
0.02 |
0.6 |
0.5 |
0.03 |
0.1 |
-0.3 |
4.d Trade credit and advances |
6.7 |
3.1 |
2.9 |
0.6 |
0.2 |
5.4 |
4.1 |
4.e Other accounts receivable/payable |
-6.9 |
-6.8 |
-1.5 |
4.8 |
-3.3 |
-0.6 |
-3.0 |
5. Reserve Assets (increase –/ decrease+) |
12.8 |
-5.4 |
-0.3 |
12.8 |
5.7 |
-0.5 |
0.2 |
Financial Account (1+2+3+4+5) |
80.7 |
18.7 |
19.0 |
20.6 |
22.4 |
15.7 |
24.2 |
Note: Total of sub-components may not tally with aggregate due to rounding off.
P: Preliminary. PR: Partially Revised – : Not available
*: Includes External Assistance, ECBs, non-NRI Banking Capital and short-term trade credit.
|
Table III.4: Capital Flows |
(US$ billion) |
Component |
2011-12 |
2012-13 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Average of monthly flows |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
FDI in India |
4.1 |
3.1 |
2.3 |
1.5 |
2.0 |
3.4 |
1.9* |
FDI by India |
1.0 |
1.0 |
0.6 |
1.0 |
0.7 |
0.5 |
0.9* |
FIIs |
0.8 |
-0.5 |
0.6 |
4.7 |
-0.6 |
2.6 |
3.3 |
ADRs/GDRs |
0.1 |
0.1 |
0.03 |
0.01 |
0.03 |
0.03 |
0.0 |
ECB |
1.0 |
1.6 |
-0.3 |
0.8 |
0.1 |
0.5 |
1.3 |
NRI |
0.4 |
0.9 |
1.1 |
1.6 |
2.2 |
0.9 |
0.9* |
*: October–November. |
III.13 Benefitting from higher interest rates
and a weakening rupee, non-resident Indians
(NRIs) nearly doubled their deposits with
banks in India during April–November 2012
compared with the corresponding period of
2011-12. Net flow through external commercial
borrowings (ECBs) was higher during Q3 of
2012-13 compared to previous quarter, despite
high principal repayments made by the Indian
corporate sector. ECBs were mainly raised for
the import of capital goods, new projects and
the redemption of FCCBs.
After depreciating in October and November,
the rupee exchange rate was range bound in
December 2012
III.14 The rupee had recovered in September
2012 due to the announcement of various
reform measures by the government and
increasing global risk appetite. However,
challenged by concerns relating to high CAD
and uncertainty regarding domestic growth,
the rupee again showed a downtrend during
October and November 2012 and subsequently
remained range bound (`54.2–55.1 per US
dollar) in December 2012. Reflecting the trend
in the rupee in nominal terms, the REER based
on 6-currency and 36-currency as on January
18, 2013 showed a depreciation of 3.5 per cent
and 3.9 per cent, respectively, over end-March
2012 (Table III.5).
Table III.5: Nominal and Real Effective
Exchange
Rates: Trade-Based
(Base: 2004-05=100) |
|
Index
Jan 18,
2013 (P) |
y-o-y
Variation
(Average)
2011-12 |
FY Variation
(Jan 18, 2013
over end-
Mar 2012) |
1 |
2 |
3 |
4 |
36- REER |
91.7 |
-3.2 |
-3.9 |
36-NEER |
78.9 |
-6.4 |
-4.9 |
6-REER |
105.7 |
-6.8 |
-3.5 |
6-NEER |
75.8 |
-7.9 |
-5.2 |
`/US$ (end-March) |
53.9* |
-12.7 |
-5.0* |
NEER: Nominal Effective Exchange Rate.
REER: Real Effective Exchange Rate.
P: Provisional. *: As on January 24, 2013.
Note: Rise in indices indicates appreciation of the rupee and vice versa. |
External debt witnessed steep rise in Q2 of
2012-13
III.15 India’s external debt as at end-September
2012 was significantly higher than in the
preceding quarter, with a rise in both longterm
as well as short-term components of debt
(Table III.6). In particular, there was a surge
in non-resident external rupee-denominated
deposits (NRE), reflecting the continued
interest shown by non-residents due to better
returns and rupee depreciation.
Table III.6: India’s External Debt |
(US$ billion) |
Item |
End-Mar 2011 (PR) |
End-Mar 2012 (PR) |
End-Jun 2012 (PR) |
End-Sep 2012 (QE) |
Variation (end-Sep 2012 over end-Jun 2012) Per cent |
Amount |
1 |
2 |
3 |
4 |
5 |
6 |
1. Multilateral |
48.5 |
50.5 |
49.7 |
50.7 |
2.0 |
2. Bilateral |
25.7 |
26.7 |
27.1 |
27.6 |
1.7 |
3. IMF |
6.3 |
6.2 |
6.0 |
6.1 |
1.6 |
4. Trade Credit (above 1 year) |
18.6 |
19.0 |
19.0 |
19.0 |
-0.3 |
5. ECBs |
88.5 |
104.9 |
104.3 |
109.0 |
4.6 |
6. NRI Deposits |
51.7 |
58.6 |
60.9 |
67.0 |
10.1 |
7. Rupee Debt |
1.6 |
1.4 |
1.2 |
1.3 |
6.8 |
8. Long-term (1 to 7) |
240.9 |
267.2 |
268.3 |
280.8 |
4.7 |
9. Short-tem
(Original Maturity) |
65.0 |
78.2 |
80.5 |
84.5 |
5.0 |
10. Short-term (Residual Maturity)# |
129.1 |
147.4 |
150.0 |
159.6 |
6.4 |
Total (8+9) |
305.9 |
345.4 |
348.8 |
365.3 |
4.7 |
PR: Partially Revised QE: Quick Estimates #: RBI estimates |
Composition of external debt changes with
greater share of short-term debt
III.16 The share of short-term debt in the
composition of external debt has been
rising in recent years, except for a dip in the
immediate aftermath of the financial crisis
(Chart III.4). The dip in share of short-term
debt immediately after the financial crisis was
mainly due to a deceleration in short-term
trade credit. The reversal in this trend has been
on account of rising short-term trade credit and
FII investment in government T-bills and some
other instruments.
External vulnerability indicators showed
mixed trend in Q2 of 2012-13
III.17 The trends in the external vulnerability indicators were mixed in Q2. While the ratio
of external debt (measured in terms of the
rupee) to GDP showed marginal improvement,
the ratio of short-term debt (original maturity)
to external debt stayed at the same level as
in the preceding quarter. However, the ratio
of foreign exchange reserves to external debt
deteriorated (Table III.7).
Table III.7: External Sector Vulnerability Indicators |
(Per cent) |
Indicator |
End-Mar 2012 |
End-Jun 2012 |
End-Sep 2012 |
1 |
2 |
3 |
4 |
Ratio of Total Debt to GDP* |
19.9 |
21.6 |
20.7 |
Ratio of Short-term to Total Debt (Original Maturity) |
22.6 |
23.1 |
23.1 |
Ratio of Short-term to Total Debt (Residual Maturity) |
42.6 |
42.9 |
43.7 |
Ratio of Concessional Debt to Total Debt |
13.9 |
13.5 |
13.2 |
Ratio of Reserves to Total Debt |
85.2 |
82.9 |
80.7 |
Ratio of Short-term Debt to Reserves |
26.6 |
27.8 |
28.7 |
Ratio of Short-term debt (Residual Maturity) to Total Debt# |
42.7 |
42.9 |
43.7 |
Ratio of Short-term Debt (Residual Maturity) to Reserves# |
50.1 |
51.8 |
54.1 |
Reserves Cover of Imports (in months) |
7.1 |
7.0 |
7.2 |
Reserves Cover of Imports and Debt Service Payments (in months) |
6.8 |
6.6 |
6.8 |
Debt Service Ratio (Debt Service Payments to Current Receipts) |
6.0 |
5.8 |
5.8 |
External Debt (US$ billion) |
345.4 |
348.8 |
365.3 |
*: Annualised GDP at current market prices.
#: RBI Estimates. |
III.18 India’s net international investment
position (NIIP), as represented by net
international liabilities, increased to US$ 271.5 billion at end-September 2012 from US$
223.8 billion at end-June 2012. The rise in net
liabilities occurred mainly due to a significant
increase in liabilities and the valuation changes
emanating from exchange rate movements.
Accordingly, the NIIP-GDP ratio at end-
September 2012 deteriorated compared with
that at end-June 2012 (Table III.8). India’s
NIIP has shown gradual deterioration during
the post-crisis period, as net international
liabilities as a per cent of GDP increased from
5.5 per cent as at end-March 2008 to 15.3
per cent as at end-September 2012 due to the
widening current account deficit.
Table III.8: Overall International Investment Position of India |
(US$ billion) |
|
Mar-11 |
Mar-12 |
Jun-12 |
Sep-12 |
1 |
2 |
3 |
4 |
5 |
NIIP |
-203.6 |
-248.4 |
-223.8 |
-271.5 |
Assets |
439.8 |
437.8 |
433.7 |
441.7 |
Liabilities |
643.4 |
686.2 |
657.6 |
713.2 |
NIIP–GDP Ratio* |
-12.1 |
-13.5 |
-12.3 |
-15.3 |
* Based on annualised GDP.
‘-’ implies net international liabilities. |
III.19 In sum, concerns about the sustainability
of India’s external sector have increased.
Despite the second round of export promotion
measures announced by the government,
uncertainty relating to recovery in global
economic and trade conditions may continue
to weigh on India’s exports. In order to bring
the CAD on a sustainable path, the trends in
India’s imports, particularly POL and gold
imports, need close monitoring. Even though
the recent policy announcements in advanced
economies have eased the global financial
stress, re-acceleration of economic activity
which is critical for recovery in global trade
prospects may take time. Growth prospects
for EMDEs also needs to improve in order to
strengthen external demand for India. Even
though abundant global liquidity augurs well
for capital flows to economies like India,
lowering CAD is important even as a sound
domestic economic and business environment
would continue to be critical to facilitate
sustained capital flows and financing of CAD
without stress.
|