Current account deficit

India’s current account deficit for Q1 FY10 at US$5.8bn was 35% lower than the deficit during Q1 FY09 of US$9bn. The deterioration from Q4 FY09 (surplus of US$4.7bn) reflects seasonality (Q4 being a stronger quarter). More importantly, capital flows turned positive after two consecutive quarters of outflows. Consequently, India returned to a BoP surplus after a gap of three quarters. India’s external debt rose marginally (by US$3.7bn) during Q1 FY10. However, the entire rise was due to valuation reasons; on constant currency basis external debt would have actually declined by US$1.3bn. As of June 2009, India’s total external debt stood at US$228bn - an extremely comfortable level given the size of the economy and its foreign exchange reserves.

The RBI said in a statement that the capital account showed a turnaround from a negative balance in the last two quarters of 2008-09 to a positive balance of US$6.7bn during the first quarter of 2009-10. Private transfer receipts, comprising mainly remittances from Indians working overseas and local withdrawals from NRI rupee deposits, increased by 9.4% to US$13.3bn during April-June quarter from US$12.2bn a year ago.

Gross capital inflows to India revived during the April-June quarter as compared to the corresponding period of last year. "The gross inflows were at US$78.5bn as compared to US$90.9bn in April-June 2008-09 mainly led by inflows under FIIs, FDI and NRI deposits," the RBI said. Gross capital outflows during the first quarter this fiscal stood lower at US$71.8bn as against US$79.7bn in the corresponding period last fiscal.

There is expectation that the annual current account deficit figure will be sharply lower from last year's US$30bn. Experts also see an improvement in capital flows, especially debt capital flows in the next few quarters.