MUMBAI/NEW DELHI India's current account deficit swelled to a record $12.54 billion in the September quarter and analysts warned on Wednesday it could balloon further as the world economy slows, putting pressure on the rupee.
The government's fiscal deficit also widened in the first eight months of the 2008/09 fiscal year, and analysts said it was on course to overshoot its target due to extra spending and a slowdown in revenue collections from sagging domestic growth.
The rupee has lost 19 percent against the dollar this year, its worst performance since a balance of payments crisis in the early 1990s, due to a rising oil import bill and foreign fund outflows from the share market amid the global financial crisis.
"The third quarter numbers are going to be much worse as, though there will be lower merchandise and current account deficits due to falling global commodity prices, we may see a capital account shortfall," said Sujan Hajra, economist at Anand Rathi Securities in Mumbai.
The overall balance of payments fell into deficit for the first time in three years. The BOP deficit in the July-September quarter stood at a quarterly record of $4.73 billion, compared with a revised surplus of $29.24 billion in the year-ago quarter.
The current account deficit stood at $4.3 billion in same period a year earlier and $9.79 billion in the prior three months of 2008/09, according to central bank data.
"The picture is likely to get gloomier as export growth has slowed sharply and remittances from software receipts are showing signs of a slowdown," said an economist at a foreign bank who did not wish to be named.
The merchandise trade deficit widened to $38.62 billion in the September quarter from $21.24 billion in the year-ago period, and $30.57 billion in the April-June period, as the import bill swelled by nearly a half due to costlier oil.
Oil hit a record high above $147 a barrel in mid-July but has since fallen to about $37 a barrel.
Crude is India's biggest import and the price of the Indian basket of crude in the fiscal first half was $116.5 per barrel, compared with $69.3 in the same period last year.
Invisible receipts, which include remittances by overseas Indians and income from software-services firms, rose by $9 billion to $26.07 billion in the September quarter, the second in the fiscal year, compared with a year earlier.
Foreign investors pulled a net $13.4 billion from shares this year compared with a record net inflow of $17.4 billion in 2007 and India's capital account surplus fell to $7.80 billion in the September quarter compared with $33.53 billion a year before.
The turnaround in fortunes has hit the rupee hard and it began an acute decline in August which culminated in a record low of 50.65 per dollar at the start of December. It ended the year at 48.70/72 per dollar on Wednesday.
External debt declined to $222.61 billion at the end of September, down $2.1 billion from end-March, the finance ministry said on its website.
FISCAL DEFICIT BALLOONS
Separately, the government said the federal fiscal deficit for April-November stood at 1.77 trillion rupees ($36.3 billion), or 132.4 percent of the annual target.
The government set a fiscal shortfall goal of 2.5 percent of gross domestic product for 2008/09, which ends in March, lower than 2.8 percent in 2007/08, but has said it could be higher.
Economists expect the shortfall to outstrip the budgeted estimate due to stimulus packages, salary increases to federal workers and a farm loan waiver scheme.
"We are looking at a fiscal deficit of 5.2 percent of gross domestic product for the full year," said Shubhada Rao, an economist at Mumbai-based YES Bank.