Current Account Deficit Narrows.

During October-December 2006, India's current account deficit was lower at USD 3 billion as compared to USD 4.8 billion during the corresponding period of 2005. Doubling of inflows under net invisibles helped to narrow down the current account deficit even as trade deficit widened further during October-December 2006.

Imports surged by a hefty 25 per cent to USD 47.9 billion during October-December 2006. Exports, however, increased at lower rate of 14 per cent to USD 28.9 billion during the quarter. The faster expansion in imports as against exports resulted in the trade deficit widening to USD 19 billion during October-December 2006 as compared to USD 13 billion during the corresponding quarter of 2005.

Net invisibles receipts almost doubled to USD 16 billion during October-December 2006 as compared to USD 8.2 billion during the corresponding quarter of 2005. The increase was on account of sharp rise in invisibles receipts even as payments remained at almost the same level. Steady expansion in invisibles surplus reflected mainly the rise in software, professional and business services, and remittances from overseas Indians.

During October-December 2006, net capital inflows were considerably higher at USD 10.7 billion as against USD 0.4 billion during the corresponding quarter of 2005. The sharply lower inflows during October-December 2005 were on account of outflows due to repayments of India Millennium Deposits (USD 5.5 billion).

The major contributors to net capital inflows were external commercial borrowings, NRI deposits and other capital. Large inflows were recorded under foreign direct investment (USD 8.7 billion) but correspondingly outflows also remained significantly large (USD 6.4 billion) following the spate of foreign acquisitions by Indian corporates.