ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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India's BoP Support

How much of a hit will India's receipts of private transfers take is an open question.

It is common knowledge that if India’s current account deficit of the balance of payments (BoP) has stayed within limits over the past decade and more (and even turned into a surplus for a few years), it has been mainly on account of the large earnings from invisibles. And among the invisibles, it is private transfers more than software earnings, which has contributed to the buoyancy in net receipts. The predominant form of private transfers in India’s BoP is of remittances. There must be some concern that the global economic crisis could affect remittances from north America and the Gulf region of west Asia, the two main sources of transfers from Indian expatriates and temporary migrant workers.

In 2008-09, India’s net income from invisibles actually grew to $89.6 billion (from $74.6 billion in 2007-08) and covered 75% of the trade deficit. It closed a smaller gap than in the previous year but this was because the deficit in the merchandise account was much wider in 2008-09. The main drivers of gross earnings in the invisibles account were, as before, software, business services and private transfers. As far as net earnings are concerned, software and private transfers are much larger than business services, where outflows for payment for business services like consultancy and engineering services are substantial.

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