Mumbai: The country's trade balance for the full financial year 2007-08 almost tripled to $90.06 billion from $63.17 billion in 2006-07 even as its external debt stood at $221.2 billion as of end-March 2008, recording an increase of $51.5 billion or 30.4 per cent over the end-March 2007 level, preliminary estimates released by the Reserve Bank of India (RBI) showed.
 
The increase was mainly due to external commercial borrowings (ECBs) that contributed around 39.5 per cent of the increase in total external debt, followed by short term debt (contribution being 34.8 per cent), RBI said in a release. 
 
India's merchandise exports on a balance of payment (BoP) basis posted a growth of 20 per cent in Q4 of 2007-08 as compared with 16.7 per cent in Q4 of 2006-07. Import payments, on BoP basis, recorded 37.2 per cent growth in Q4 of 2007-08 as against an increase of 14.7 per cent in Q4 of 2006-07.

While there was significant growth in oil imports at 88.9  per cent in Q4 of 2007-08 (5.3 per cent in Q4 of 2006-07), non-oil imports recorded a  growth of  30.6 per cent (up 21.4 per cent in Q4 of 2006-07), non-oil imports also rose on the back of rising imports of capital goods, coal and coke, chemicals and fertilisers, according to data released by the directorate general of commercial intelligence and statistics (DGCI&S).

The sharp increase in oil imports reflected the impact of increasing oil price of the Indian basket of international crude (a mix of Oman, Dubai and Brent varieties), which increased to $93.9 per barrel in Q4 of 2007-08 from $56.4 per barrel in the corresponding quarter of the previous year.

The country's trade deficit increased to $23.8 billion in Q4 of 2007-08 ($12.9 billion in Q4 of 2006-07) mainly on account of higher growth in crude oil imports.

Invisible receipts showed a growth of 26.2 per cent in Q4 of 2007-08 (25.6 per cent in Q4 of 2006-07), while payments recorded a growth of 20.0 per cent in Q4 of 2007-08 (52.7 per cent in Q4 of 2006-07). 

Invisible surplus showed a steady expansion at $22.8 billion in Q4 of 2007-08 ($17.1 billion in Q4 of 2006-07), reflected mainly the growth in exports of software services and travel receipts, and inward remittances from overseas Indians for family maintenance.

The current account balance turned into a deficit in Q4 of 2007-08 ($1.0 billion) as against a surplus ($4.3 billion) in Q4 of 2006-07, mainly due to surge in crude oil imports.

The net capital inflows rose substantially to $25.4 billion in Q4 of 2007-08 from $15.6 billion in Q4 of 2006-07. The major sources of capital inflows were external commercial borrowings (ECBs), foreign direct investment (FDI), short term trade credit and overseas borrowings by the banks.

Foreign Direct Investment (FDI) showed strong bi-directional movement, reflecting higher inward FDI as well as outward FDI by the Indian companies.

Accretion to foreign exchange reserves (excluding valuation) at $25.0 billion in Q4 of 2007-08 was higher than $20.5 billion in Q4 of 2006-07, mainly led by buoyant capital inflows, RBI said in the release.

The widening of the country's balance of payments position in Q4 2007-08 was characterised by a sharp rise in trade deficit due to rise in crude oil imports; a steady pace of invisibles surplus mainly led by remittances from overseas Indians and software services; a turnaround in the current account balance to a deficit in Q4 of 2007-08 from a surplus in Q4 of 2006-07; and a substantial increase in capital flows led by FDI, short term credit and overseas borrowings by the banks, leading to large accretion to reserves, RBI said.

The BoP position for the full financial year 2007-08 has been worked out taking into account the partially revised data for the first three quarters of 2007-08 and the preliminary data compiled for Q4 of 2007-08, RBI said.
 
Merchandise exports recorded an increase of 23.7 per cent during 2007-08 (21.8 per cent in the previous year). Merchandise import payments, on BoP basis, showed a growth of 29.9 per cent in 2007-08 (21.8 per cent in 2006-07).

The commodity-wise data released by DGCI&S (April-February 2007-08) revealed a pick up in the growth of primary products, while manufactured exports witnessed some moderation in growth. Agriculture and allied products, engineering goods, gems and jewellery and petroleum products were the mainstay of exports, as these items contributed about 72 per cent of the export growth during April-February 2007-08.

Imports during 2007-08 at $76.9 billion recorded a growth of 34.6 per cent (30 per cent in 2006-07), driven mainly by the surge in international crude oil prices, while imports in terms of quantity showed subdued growth. The average import price of Indian basket of crude oil (a mix of Oman, Dubai and Brent varieties) stood at $79.5 per barrel during 2007-08 (ranging between $65.5 – $99.8 per barrel), which was higher by 27.3 per cent than the average price of $62.4 per barrel (ranging between $52.4 and $71.3 per barrel) in 2006-07. The growth in quantity of POL imports during 2007-08 at 11.8 per cent was lower than the previous year (14.5 per cent), according to the data released by DGCI&S.

Non-oil imports increased by 23.5 per cent in 2007-08 (22.2 per cent in 2006-07) mainly led by strong growth in imports of capital goods and gold and silver.

During April-February 2007-08, imports of gold and silver grew by 24.9 per cent (29.2 per cent during the same period of last year). Non-oil imports excluding gold and silver increased by 32.1 per cent as compared with 22.3 per cent a year ago. Capital goods accounted for 40 per cent of the non-oil imports excluding gold and silver.

The other major non-oil products which showed accelerated growth in imports during the period were edible oil, fertilisers, iron and steel, pearls, precious and semi-precious stones, chemicals, textiles, coal, and coke.

With imports outpacing the growth in exports, trade deficit widened to $90.1 billion in 2007-08 (7.7 per cent of GDP) from $63.2 billion (6.9 per cent of GDP) in 2006-07.

Invisible receipts, comprising services, current transfers and income, rose by 26.2 per cent during 2007-08 (28.3 per cent in 2006-07) mainly due to the momentum maintained in the growth of software services exports, travel, transportation, along with the steady inflow of remittances from overseas Indians.

Private transfer receipts, mainly comprising remittances from Indians working overseas amounted to $42.6 billion in 2007-08 as compared with $29.0 billion in 2006-07.
 
Under Private transfer, the inward remittances for family maintenance accounted for about 49 per cent of the total private transfers receipts, while local withdrawals accounted for about 45 per cent in 2007-08.

NRI deposits when withdrawn domestically, form part of private transfers because once withdrawn for local use these become unilateral transfers and do not have any quid pro quo, e.g. grants, gifts, and migrants' transfers by way of remittances for family maintenance, repatriation of savings and transfer of financial and real resources linked to change in resident status of migrants.

In the recent past, there has been steady inflow under NRI deposits. However, at the same time, outflows have also risen. A major part of outflows from NRI deposits is in the form of local withdrawals. These withdrawals, however, are not actually repatriated but are utilised domestically.  However, the share of local withdrawals in total outflows from NRI deposits has declined to 65 per cent in 2007-08 from 85 per cent in 2006-07 and 83 per cent in fiscal 2005-06, RBI said. 

The expansion in invisible surplus to $72.7 billion in 2007-08 ($53.4 billion in 2006-07) reflected mainly the steady inflows of remittances from the overseas Indians and software services exports.

During 2007-08, the widening of the trade deficit mainly led by imports resulted in a higher level of current account deficit which stood at $17.4 billion or 1.5 per cent of GDP ($ 9.8 billion or 1.1 per cent of GDP in 2006-07).     

Both capital inflows to India and outflows from India remained large during 2007-08 reflecting the increased liberalisation of capital account, investors' optimism and sustained growth momentum of India. The gross capital inflows to India amounted to $428.7 billion as against an outflow of $320.7 billion during 2007-08.

The net capital flows at $108.0 billion (9.2 per cent of GDP) in 2007-08 were 2.4 times that of 2006-07 ($45.8 billion or 5.0 per cent of GDP) and 4.2 times of the net flows of 2005-06 ($25.5 billion or 3.1 per cent of GDP).

The capital flows were dominated both by the debt as well as the non-debt flows. While large inflows and outflows were recorded in almost all the components of capital flows, there were only lower net inflows witnessed in the segment of   Non-Resident Indian (NRI) deposits.

Net foreign direct investment (FDI), comprising equity, reinvested earnings and inter-corporate loans,  (net inward FDI minus net outward FDI) amounted to $15.5 billion in 2007-08 as against $8.5 billion in 2006-07. Net inward FDI at $32.3 billion during 2007-08 ($22.0 billion in 2006-07) reflected the continued strength of sustained domestic activity and positive investment climate with inflows channelising into construction, manufacturing, business and computer services. Net outward FDI stood at $16.8 billion during 2007-08 ($13.5 billion in 2006-07) reflecting the pace of global expansion by the Indian companies in terms of markets and resources, the release noted.

Net accretion to foreign exchange reserves on BoP basis (i.e., excluding valuation) at $92.2 billion in 2007-08 ($36.6 billion in 2006-07) was led mainly by strong capital inflows. Taking into account the valuation gain of $18.3 billion ($11.0 billion in 2006-07), foreign exchange reserves recorded an increase of $110.5 billion in 2007-08 ($47.6 billion in 2006-07)

As of end-March 2008, with outstanding foreign exchange reserves at $309.7 billion, India held the third largest stock of reserves among the emerging market economies and fourth largest in the world.

During 2007-08, based on the records of the DGCI&S imports data and the BoP merchandise imports, the difference between the two data sets works out to $12.8 billion as compared with $5.5 billion in 2006-07.

External debt

The external debt of the country stood at $221.2 billion as of end-March 2008 recording an increase of $51.5 billion or 30.4 per cent over the end-March 2007 level. The increase was mainly due to external commercial borrowings (ECBs) that contributed around 39.5 per cent of the increase in total external debt, followed by short term debt (contribution being 34.8 per cent). 

Out of the increase of $51.5 billion in external debt during the year 2007-08, valuation effect reflecting the depreciation of the US dollar against other major international currencies and Indian rupee accounted for $9.9 billion of the increase. This would imply that excluding the valuation effects, the stock of external debt as at end-March 2008 increased by about $41.6 billion over the end-March 2007 level.

All the components of external debt recorded an increase during the year. External commercial borrowings (ECB) (including FCCBs) at $62.0 billion recorded the maximum increase of $20.4 billion (48.9 per cent) during the year. This was mainly due to the rising financing requirements of the Indian companies on account of their ongoing technological upgradation and capacity expansion.

The data on short term debt now includes supplier's credit up to 180 days with effect from end-March 2005. Short term debt also recorded an increase of $17.9 billion during 2007-08. Under short term debt, while trade related credits rose significantly by around $17.7 billion in line with the rising imports, FII debt investment in government papers rose by about $254 million.

All the other components of external debt also recorded an increase during 2007-08: multilateral debt ($4 billion), bilateral debt ($3.6 billion), export credit above one year maturity ($3.2 billion) and NRI deposits ($2.4 billion). Rupee debt recorded a marginal rise of $69 million.