India's balance of payments turns negative in Q2FY16

India's balance of payments (BoP) turned negative in the second quarter of 2015 after a gap of seven quarters. As per Reserve Bank of India (RBI) data, the country witnessed $0.86 billion depletion of reserve assets, the depletion last seen in the September 2013 quarter of $10.4 billion, due to flight of foreign institutional investors (FIIs) and capital outflows on the loan account.

FIIs were solely responsible for the depletion of reserves this quarter. India saw net FII outflows of $6.5 billion between July and September 2015. FII inflows had started surging from the beginning of the calendar year 2014 but turned negative in the June 2015 quarter. The situation worsened in Q2FY16. Net outflow of portfolio investments intensified to $6.5 billion from $2.6 billion in the June 2015 quarter. Unlike in April-June 2015, the September quarter saw a bulk of the outflows from the equity market.

Net foreign direct investments (FDI) in India during July-September 2015 were at $6.6 billion, the lowest in the past six quarters. A major chunk of this investment flew in from Singapore and Mauritius and went into telecom, software, automobile, mining, construction and other services sectors.

Other net investments in India during the September 2015 quarter amounted to $8.8 billion. Half of it came in the form of NRI deposits, while the other half was divided between external assistance, ECBs and banking capital.

It is worth noting that although net other investments during July-September showed a big jump over the investments of mere $1.1 billion in the year-ago quarter, it is substantially lower than the investments seen on this account in the preceding three quarters.

Overall, the country witnessed net capital inflows (excluding reserves) of $7.2 billion during July-September 2015, the lowest quarterly inflows in the past two years. These inflows were not sufficient to cover the country's current account deficit, which amounted to $8.2 billion.