X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Economy: That invisible(s)’ touch… - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 22, 2006

    Economy: That invisible(s)’ touch…

    In recent times, India's balance of payments position has been determined by the steady flow of invisible receipts, which have managed to finance a large part of the current account deficit. For this reason alone, the importance of 'invisibles' cannot be undermined. In this write-up, we shall examine the major factors contributing to the surge in invisible receipts.

    What are invisibles?
    The current account comprises of two components viz., merchandise (i.e. trade) account and invisibles (exports of services like software, and remittances from abroad). The former is concerned with the imports and exports of only goods. Whereas, invisibles have three major heads namely services, transfers and income. While services include receipts and payments with respect to travel, transportation and software, transfers include private transfers especially remittances from Indians residing abroad.

    Travel: Receipts under travel consist of expenditure made by foreign tourists towards hotel accommodation, food and beverages and goods and services purchased including domestic travel. Tourist inflow in India has gained momentum in the past few years. While global recession dented tourist arrivals in India in the 1990s, this trend has reversed in recent times. The impressive performance in tourist arrivals has been attributed to a strong sense of business and investment confidence in India led by growth of the Indian economy, strong performance of the domestic corporate sector and opening up of the economy to greater foreign participation.

    Software services: India's position as the preferred destination for software and IT related services has been reflected by the rise in software services exports to US$ 23.6 bn in FY06. This positive trend is expected to continue in the future as well. The key drivers to this growth have been India's low-cost base, good engineering and management talent, natural time zone advantages and global delivery capabilities.

    Transfers: The surge in the NRI remittances to India has been attributed largely to the oil boom in the Middle East during the 1970s and 1980s and the information technology boom in the 1990s, which witnessed a migration of workers to the Middle East and the US respectively. This has led to India becoming one of the highest remittances receiving country in the world. Remittances include repatriation of funds for family maintenance and local withdrawals from the NRI deposits. Inward remittances from Indians working abroad have reached US$ 24.6 bn in FY06 from US$ 2.1 bn in FY91 (Source: RBI). These remittances have stabilised at around 3% of GDP in the last few years and have played an instrumental role in offsetting India's trade deficit to a large extent.

    Private transfers to India
    Year Flows (US$ bn) % of GDP
    FY00 12.3 2.7
    FY01 13.1 2.8
    FY02 15.8 3.3
    FY03 17.2 3.4
    FY04 22.2 3.7
    FY05 21.1 3.0
    FY06 24.6 3.1
    Source: RBI

    To conclude…
    While invisibles have managed to stem the slide of the current account balance between FY02 and FY04, the same has not been the case in FY05 and FY06. In these two years, despite the invisibles charting an upward trend, the current account balance, nevertheless, slipped into the negative due to the burgeoning trade deficit (US$ 37.4 bn in FY06). The latter can be attributed to two factors viz. increase in both oil and non-oil imports and exports not able to keep pace with imports.

    One major factor contributing to the trade deficit has been the rise in crude prices, which given the fact that India imports around 70% of the oil that it consumes, continues to have an important bearing on the trade balance. The key here is exports. While invisibles will continue to play a key role in propping up the current account, India will have to step up its pace of exports, if gap has to narrow down. That said, despite a current account deficit, India's favourable BOP position and comfortable level of forex reserves means that the economy has come a long way since the kind of BOP crisis that emerged in the early 1990s.

     

     

    Equitymaster requests your view! Post a comment on "Economy: That invisible(s)’ touch…". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 03:07 PM

    MARKET STATS