Remittances, software exports help curtail balance of payment deficit

Increased remittances from Indians abroad and higher software services exports have helped contain the current account deficit in the balance of payments despite rising trade deficit.

Preliminary figures released by the Reserve Bank of India show that the current account deficit remained flat at $16.9 billion during the quarter ended September 2011, the same level as in the quarter a year ago.

Total merchandise trade deficit rose 19 per cent to $44 billion during the quarter from $37 billion during the previous comparable quarter. As a percentage of GDP, current account deficit as of end-September was marginally lower at 3.6 per cent of the GDP, compared to 3.7 per cent in the year-ago period.

Service sector surplus as reflected in invisibles in the balance of payments, however, was lower at $27 billion ($20 billion) on higher software income and remittances by the overseas Indians.

Both software services income and remittances rose 25 per cent during the quarter to $15 billion and $16.2 billion, respectively. But investment income - largely comprising returns from deploying foreign exchange reserves - continued to dip on account of a benign interest rate environment globally.

Overall balance of payments that include both current and capital account transactions for the quarter ended in a lower surplus of $276 million ($3.3 billion) due to lower capital account surplus of $18.4 billion ($21.6 billion).