Forex reserves increase for a third straight quarter in April-June

news
01 September 2014

India added $11.2 billion to its foreign exchange reserves during April-June, a third straight quarter of net inflows, on the back of slowing imports and rising exports, provisional data released by the Reserve Bank of India (RBI) showed.

RBI noted that with curbs in import of gold, exports picked up and gold imports slumped. This helped the balance of payments, which was a negative $300 million, rise to a $11.2 billion surplus in the June quarter of the RBI's fiscal year ended March 2014.

''On a BoP basis, there was a net accretion of $11.2 billion to India's foreign exchange reserves in Q1 of 2014-15 as against a drawdown of $0.3 billion in Q1 of 2013-14,'' RBI said.

The trade deficit in the April-June period fell to $34.6 billion from $50.5 billion a year earlier, as gold imports dropped 57.2 per cent to $7 billion from $16.5 billion for the comparable period.

India's current account deficit (CAD) narrowed sharply to $7.8 billion (1.7 per cent of GDP) in Q1 of 2014-15 from $21.8 billion (4.8 per cent of GDP) in Q1 of 2013-14. However, it was higher than $1.2 billion (0.2 per cent of GDP) in Q4 of 2013-14.

The lower CAD was primarily on account of a contraction in the trade deficit contributed by both a rise in exports and a decline in imports, data released by the Reserve Bank of India (RBI) showed.

On a BoP basis, the country's merchandise exports at $81.7 billion increased by 10.6 per cent in Q1 of 2014-15 against a decline of 1.5 per cent in Q1 of 2013-14.

On the other hand, merchandise imports (on BoP basis) at $116.4 billion moderated by 6.5 per cent in Q1 of 2014-15 as against an increase of 4.7 per cent in Q1 of 2013-14.

The decline in imports was primarily led by a steep decline of 57.2 per cent in gold imports, which amounted to $7.0 billion, significantly lower than the $16.5 billion in Q1 of 2013-14. Notably, non-gold imports recorded a modest rise of 1.3 per cent as against decline of 0.6 per cent in corresponding quarter of the previous year, reflecting some revival in economic activity, RBI noted.

As a result, the merchandise trade deficit (BoP basis) contracted by about 31.4 per cent to $34.6 billion in Q1 of 2014-15 from $50.5 billion in the corresponding quarter a year ago.

Net services receipts improved marginally in Q1 of 2014-15 on account of higher exports of services. Net services at $17.1 billion recorded a growth of 1.2 per cent in Q1 of 2014-15.

Net outflow on account of primary income (profit, dividend and interest) amounting to $6.7 billion in Q1 of 2014-15 was higher than that of $4.8 billion in the Q1 of 2013-14 as well as in the preceding quarter ($6.4 billion).

In Q1 of 2014-15, gross private transfer receipts at $17.5 billion, however, were marginally lower compared with the corresponding quarter of 2013-14. In fact, in Q1 of 2013-14, private transfers had shown a significant increase of around 6 per cent over the preceding quarter, possibly responding positively to the rupee depreciation.

In the financial account, on net basis, both foreign direct investment and portfolio investment recorded inflows in Q1 of 2014-15. While net inflow on account of portfolio investment was $12.4 billion, against an outflow of $0.2 billion in Q1 of 2013-14, net FDI inflow was substantially higher at $8.2 billion ($6.5 billion in Q1 of 2013-14).

'Loans'(net) availed by deposit taking corporations (commercial banks) witnessed an outflow of $2.6 billion in Q1 of 2014-15 owing to higher repayments of overseas borrowings and a build-up of their overseas foreign currency assets. Under 'currency and deposits', net inflows of NRI deposits amounted to $2.4 billion in Q1 of 2014-15 compared with $5.5 billion in Q1 of 2013-14.

The amount of loans (net) of other sectors (ie, external commercial borrowings) at $1.7 billion was much higher than $0.9 billion in Q1 of 2013-14. After recording a net outflow in the three preceding quarters, net trade credits and advances recorded a net inflow of $0.2 billion albeit lower than that of $2.5 billion in Q1 of 2013-14.

On a BoP basis, there was a net accretion of $11.2 billion to India's foreign exchange reserves in Q1 of 2014-15 as against a drawdown of $0.3 billion in Q1 of 2013-14.





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