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Trade and External Sector

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Trade and External Sector

June, 2010

The trade and external sector of the country witnessed heightened momentum due to the growth in exports, increase in capital inflows and addition in the foreign exchange reserves. As per a report, “Macroeconomic and Monetary Developments in 2009-10" released by the Reserve Bank of India (RBI) on April 19, 2010, the exports reported a growth of around 20.5 per cent during November 2009-February 2010, while imports posted an increase of 40.3 per cent during December 2009-February 2010, showcasing the impact of global recovery on the Indian economy.

As per the report, India's balance of payments during April-December 2009 also remained upbeat. As per the preliminary figures, the overall balance of payments during April-December 2009 stood at US$ 11.3 billion. The report further stated that capital inflows during the period were also buoyant, majorly due to the positive growth of the portfolio inflows. The gross capital inflows during the period reported a figure of US$ 257.1 billion. Further, the net capital account stood at US$ 43.2 billion during the period.

Foreign exchange reserves were up by US$ 1.69 billion to US$ 272.783 billion, for the week ending June 11, 2010, on account of revaluation gains.

Further, as per the RBI's supplement, the country's gold reserves were valued at US$ 19.4 billion as on June 4, 2010.

The 'OECD Investment Policy Reviews: India 2009' report hails India as both a major destination for foreign direct investment (FDI), and a major source of FDI. The report adds that India has become a major global player with high economic growth rates and its performance in the past year has been particularly impressive in view of the global collapse in FDI flows. Further, as per the World Investment Report 2009 India has been named as one of the top five most attractive locations for FDI for 2009-11.

Meanwhile, mergers and acquisitions (M&As) among private equity companies are also witnessing growth. In January 2010, the country reported 85 M&A and PE deals, including qualified institutional placement (QIP), garnering US$ 3.8 billion, as per data released by Grant Thornton. Last year during the same month, the figures stood at US$ 2.1 billion with 34 deals. The total value of outbound M&A i.e. Indian companies acquired businesses outside India, stood at US$ 341 million with 15 deals during January 2010, as compared to US$ 40 million with five deals in January 2009. India conducted 29 PE deals, garnering US$ 1.24 billion in January 2010, in comparison to US$ 309 million with 16 deals during the corresponding month last year.

Capital inflows

As per the report, "Macroeconomic and Monetary Developments in 2009-10", capital flows would remain positive during the third quarter of 2009-10. This would be mainly due to the inflow of FDI, short-term trade credits and portfolio investments. Further, the report predicts that the capital inflows to India are expected to grow further during 2010-11. This would be majorly driven by push and pull factors. The push factors would include excess global liquidity and low interest rates, while the pull factors would comprise buoyant growth prospects, favorable interest rate differential and relaxation of ECB norms for 3G spectrum.

FDI

India attracted FDI equity inflows of US$ 1.2 billion during March 2010. The cumulative amount of FDI equity inflows from August 1991 to March 2010 stood at US$ 132.4 billion, while the amount of FDI inflow into India during the fiscal year 2009-10 stood at US$ 34.1 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP).

FDI equity inflows during financial year 2009-10 were US$ 26 billion.

Services sector attracted the maximum FDI during 2009-10 with US$ 4.3 billion. The country received maximum FDI from countries like Mauritius, Singapore, and the US with US$ 10.3 billion, US$ 2.3 billion and US$ 1.9 billion, respectively, during 2009-10.