India's balance of payment (BoP) slipped into negative territory for the first time in three years in the three months through December, as expected, on shrinking dollar inflows, while the country's current account deficit widened further.
The final quarter of 2011 was marked by risk aversion among global investors as well as a worsening Indian economy and surging fiscal deficit, which crimped inflows.
The balance of payments deficit in the three months was $12.8 billion, compared with a surplus of $4 billion a year earlier. It had last been in the red in the December quarter of 2008, soon after the Lehman crisis.
"India's BoP experienced a significant stress as trade deficit widened and capital inflows fell far short of financing requirement resulting in significant drawdown of foreign exchange reserves," the Reserve Bank of India said in a statement on Friday.
The country's current account deficit was $19.6 billion in the December quarter, higher than $9.7 billion a year earlier. The deficit has been widening steadily since the start of the fiscal year in April as exports slumped and imports rose.
Rising global oil prices pushed up import bills for Asia's third-largest economy, which sources more than 80 per cent of its oil overseas. For more stories on oil, see
"There is a possibility that we may not attract sufficient inflows to take care of current account deficit, which is likely to keep the BoP under pressure," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.
Foreign funds invested a net $8.05 billion in 2011, sharply lower than the $39.2 billion in the previous year.
Earlier in the month, Nomura forecast a BoP deficit of about $10 billion for the Oct-Dec period on lower foreign fund inflows and weak export demand.
In mid-December, the Indian rupee plunged to a record low of 54.30 to the dollar as investors grew worried about the global economy, raising the prospect of further capital outflows from emerging markets.
India's financial account surplus stood at $20.9 billion in the December quarter compared with $9.9 billion a year earlier. It stood at $17.9 billion in the previous quarter.
The financial account includes, among other items, foreign direct investment and portfolio investment as well as overseas borrowing by Indian cmpanies.