BoP turns into surplus; current a/c gap shrinks

Strong Foreign Direct Investment (FDI) during the October-December quarter lifted the overall Balance of Payments (BoP) into a surplus of US$7.5bn as against a BoP deficit of US$4.67bn in the year-ago period.

The net capital inflows in Q3 FY07 stood at US $ 10.7bn versus US $ 0.4bn in the corresponding period of last year. It may be mentioned that in Q3 FY06, net capital flows were affected by outflows due to repayments of IMDs (US $ 5.5bn).

While FDI in to India surged in the third quarter to US $ 8.7bn (US$2bn), outward direct investments from India at US $ 6.4bn (US$784mn) also showed strong growth due to some large overseas acquisitions. The major contributors to net capital inflows were External Commercial Borrowings (ECBs), NRI deposits and other capital.

The current account deficit, a key barometer of a country's trade, declined to US$3.04bn in the quarter ended December 31, 2006 from US$4.78bn a year earlier, the Reserve Bank of India (RBI) said on Friday.

The fall in the current account deficit was largely due to higher income from software, business and financial services rendered abroad, coupled with remittances from Non-resident Indians and income from tourism.