Strong software services exports and workers' remittances resulted in narrowing the current-account deficit in 3QFY11. While ECB and banking capital inflows gained traction, inflows under FDI and short-term loans deteriorated, resulting in a subdued capital account surplus. We see improvement in both current and capital account balances in 4QFY11.
n Lowest current a/c deficit in six quarters. India 's current account deficit (CAD) for 3QFY11 narrowed to US$9.7bn (2.3% of GDP), against US$12.2bn (3.5% of GDP) a year earlier. During Apr-Dec 2010, however, the CAD, at US$38.9bn, was much higher than the US$25.5bn deficit in the same period last year.
n Goods trade deficit widens. Despite higher growth in exports vs. imports, the merchandise trade deficit marginally increased to US$31.6bn in 3QFY11 from US$30.9bn in the year-ago quarter.
n Spurt in both software exports and remittances. The software services exports in 3QFY11 increased 14.6% to US$14.7bn, the highest ever in a quarter, against US$12.9bn a year ago. Workers' remittances rose 5.2% to US$13.4bn in 3QFY11 from US$12.8bn in the year-ago quarter.
n Non-software services remains a drag. Though the balance of non-software services exports in 3QFY11 were a drag (a US$2.6bn deficit), it has markedly improved from the US$4.7bn deficit of the year-earlier quarter.
n Subdued capital a/c surplus. The capital account surplus rose only marginally to US$14.9bn in 3QFY11, against US$14.6bn a year ago. While inflows under portfolio investment, external commercial borrowing (ECB) and banking capital gained some traction over 3QFY10, inflows under foreign direct investment (FDI) and short-term trade credits were subdued.
n ECB inflows gaining traction. ECB inflows rose to US$3.6bn in 3QFY11, against US$1.7bn a year earlier. Banking capital inflows surged to US$4.9bn in 3QFY11 from US$1.9bn a year ago.
n Outlook. We expect the current account deficit to narrow further in 4QFY11 for two reasons: (a) high exports growth vs. imports resulting in narrowing of the merchandise trade deficit; (b) higher invisible surplus on buoyant software services exports and strong remittances. We maintain our call that the current account deficit would be around US$45bn in FY11.
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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