BoP surplus seen dwindling

That means India will not eat into its 36.7 billion foreign exchange reserves, which covers eight months of imports, but it will not be adding much either. Last year, the balance of payments surplus surged 50 per cent to 6.4 billion, adding 5.5 billion to the country8217;s reserves.

Invisible inflows, including software and non-resident remittances, restricted the current account deficit to 1.5 per cent of GDP, and analysts expect a repetition. quot;The overall balance of payments will be slightly weaker than last year and the current account deficit will widen mildly,quot; said PK Basu, South-East Asia chief economist at CSFB, Singapore. quot;If software exports grow over 50 per cent, it will be a big offset for higher merchandise imports,quot; he added.

SOFTWARE EXPORTS KEY FOR CURRENT ACCOUNT: The software industry has forecast its exports will surge 58 per cent to 6.3 billion this year. The extra export revenues from software will partially offset an expected 4-6 billion increase in the oil import bill to around 17-19 billion this year, but will not compensate for an expected slippage in capital inflows.

A Reuters poll in June forecast the trade deficit, excluding invisibles which software falls under, will rise to 16.3 billion from last year8217;s estimated 14.3 billion.

Exports rose 30 per cent in April and May, but import growth was more robust at 37 per cent. With the economy projected to grow over seven per cent that fast pace in imports may be sustained.

quot;The trade deficit is going to widen, but a buoyancy in invisibles is expected to curb the current account deficit to less than 5 billion,quot; Rohini Malkani, economist at Jardine Fleming India Broking said.

Malkani and Basu are optimistic, expecting the balance of payments will lead to a 2.5-3.0 billion addition to reserves. Several others, who wish to remain anonymous, feel the flows will barely balance. And, if the central bank is not able to spend as generously as in the past, the rupee, though convertible only on the current account, could be in for more volatile swings this year.

CAPITAL FLOWS ALSO AN IMPONDERABLE: India8217;s balance of payments moved into a surplus four years back when it became a popular destination for foreign investors, though the amounts have not added up to the quantum leap the country wants.

Independent forecaster, the Centre for Monitoring the Indian Economy, projects capital inflows will be nearly a billion dollars lower than last year8217;s 9.98 billion.

Corporates may borrow less abroad. Dollar loans are costly after the steep rise in US interest rates in the past year. Portfolio flows could also be lower if the equity market sentiment remains weak. Foreign funds have invested just 143 million since April compared with their heavy 3 billion investment in all of 1999/2000.

Two technology and media firms have raised 200 million through listing on overseas stock markets since the new fiscal year began, but, if other issuers go ahead as planned, inflows may be four times last year8217;s 768 million.

The trend in foreign direct investment FDI is encouraging though analysts warn the government has to reform the public sector if it wants investment in key sectors like infrastructure. FDI flows in April and May totalled 979 million compared with 2.16 billion in the previous 12 months.