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Macroeconomic and Monetary Developments First Quarter Review 2005-06

Developments in the External Sector

23. During 2004-05, the current account of the balance of payments (BoP) turned into a deficit after remaining in surplus consecutively for three years (2001-04). Notwithstanding a moderate current account deficit, there was a turnaround of US $ 17.0 billion, from a surplus of US $ 10.6 billion in 2003-04 to a deficit of US $ 6.4 billion in 2004-05, largely reflecting a deterioration both in oil balance (US $ 6.0 billion) and non-oil trade balance (US $ 7.4 billion).

24. During April-June 2005, India’s exports increased by 19.5 per cent in US dollar terms as compared with 34.0 per cent in the corresponding period of the previous year. However, imports rose faster by 37.8 per cent as compared with 36.6 per cent in the corresponding period last year. Oil imports increased by 33.1 per cent and non-oil imports increased by 39.9 per cent. Consequently, the overall trade deficit widened to US $ 11.5 billion during April-June 2005 as against US $ 6.0 billion in the corresponding period of the previous year.

25. The higher trade deficit this year reflects the high oil imports bill as also the growth in non-oil imports, notably capital goods imports. Disaggregated data indicate an increase of 62.0 per cent in non-oil imports (excluding gold and silver) in April 2005 as against 8.1 per cent in April 2004. Whereas exports of ores & minerals, engineering goods, chemicals and textiles remained buoyant, there was a deceleration in exports of agriculture & allied products and leather.

26. During April-July 2005, the Indian foreign exchange market witnessed orderly conditions with the Rupee exhibiting two-way movements. Upto July 25, 2005, the Rupee appreciated by around 0.6 per cent against the US dollar, 7.9 per cent against the Euro, 8.6 per cent against the Pound Sterling and 4.8 per cent against the Japanese Yen. India's forex reserves, which were US $ 141.5 billion as at end-March 2005 declined by US $ 4.0 billion to US $ 137.5 billion on July 22, 2005.

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