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Capital account records all capital inflows and outflows of a country and forms part of
balance of payment (BoP).
It tracks the capital movement for investments and loans into and out of a country.
When there is capital account surplus it means a country is receiving more capital
inflows. This results in increase in overall increase in BoP, thereby resulting increase in
countrys foreign exchange reserves*.
Current account deficit is financed by capital account surplus*.
Chart below shows annual capital account and current account and overall balance of
payment trend in absolute term.
150
Balance of Payment
125
Capital Acount
Current A/c
100
Balance of Payment
75
USD Bn
50
25
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
-25
-50
-75
-100
Source: RBI
From the above chart, we can see that India has always had a capital account surplus.
Capital account has always exceeded current account and been able to finance current
account deficit except in the years 2009 & 2012.
Although in the years 2009 & 2012, there has been capital account surplus, but it has
not been enough to fund the current account deficit resulting in negative BoP.
*Refer to ReWISE on Current account deficit and Rupee Appreciation & Depreciation
Capital inflows and outflows are classified into foreign investments, loans, banking
capital, rupee debt service and other capital.
Foreign investment is divided into two components foreign direct investments (FDI)
and foreign portfolio investments.
FDI refers to foreign investment made in and by India through mergers &
acquisitions or setting up new operations while foreign portfolio investments
include FII investments in Indian capital market.
Loans are further classified into external assistance, commercial borrowings (medium
and long term) and short term loan.
External assistance refers to loans given to India from foreign government and
loans given by India to other foreign government.
Commercial borrowings include all medium and long term loans from India
through EXIM bank to other countries and loans to Indian companies through
FCCB, floating rate notes etc.
Short term loans include loans up to 1 year to India for imports directly by
overseas supplier. Its components include suppliers credit up to 180 days,
buyers credit and suppliers credit greater than 180 days.
Banking Capital includes foreign assets and liabilities of commercial banks like NRI
deposits, foreign currency holdings etc and movement in balances of foreign central
banks and international institutions like Asian Development bank, International Bank for
Reconstruction and Development, International Development Association etc.
Rupee debt service includes interest payments and principal repayments on account
civilian and non civilian debt in respect of Rupee Payment Area.
Other capital includes all other capital flows not included above categories like delayed
export receipts, quota payments to IMF, Indias subscriptions to international institutions
etc.
Table below shows net break up of capital account over the years.
Column1
CapitalAcount (a+b+c+d+e)
Foreign investment (a)
FDI
Portfolio Invesment
Loans (b)
External Assistance
Commercial borrowings
Short term
Banking capital (c )
Rupee debt service (d)
Other capital (e)
FY01
8.8
5.9
3.3
2.6
5.3
0.4
4.3
0.6
-2.0
-0.6
0.3
FY02
8.6
6.7
4.7
2.0
-1.3
1.1
-1.6
-0.8
2.9
-0.5
0.8
FY03
10.8
4.2
3.2
0.9
-3.9
-3.1
-1.7
1.0
10.4
-0.5
0.6
FY04
16.7
13.7
2.4
11.4
-4.4
-2.9
-2.9
1.4
6.0
-0.4
1.7
FY05
28.0
13.0
3.7
9.3
10.9
1.9
5.2
3.8
3.9
-0.4
0.7
FY06
25.5
15.5
3.0
12.5
7.9
1.7
2.5
3.7
1.4
-0.6
1.2
FY07
45.2
14.8
7.7
7.1
24.5
1.8
16.1
6.6
1.9
-0.2
4.2
FY08
106.6
43.3
15.9
27.4
40.7
2.1
22.6
15.9
11.8
-0.1
11.0
FY09
6.8
5.8
19.8
-14.0
8.3
2.4
7.9
-2.0
-3.2
-0.1
-4.0
FY10
53.4
51.2
18.8
32.4
13.3
2.9
2.8
7.6
2.1
-0.1
-13.0
FY11
61.3
38.6
8.3
30.3
28.4
4.9
12.5
11.0
5.0
-0.1
-10.6
FY12
67.8
39.2
22.1
17.2
19.3
2.3
10.3
6.7
16.2
-0.1
-6.9
Source: RBI
We can see that the capital flows peaked in 2008 to ` 106.8bn and fell to ` 6.8bn in 2009
during the crisis.
India capital flow composition has changed over period of time.
FY13*
71.6
29.9
15.3
14.6
22.1
1.8
4.5
15.7
20.2
0.0
-0.5
Metallurgical industries 4%
Hotel &
Tourism
3%
Power
4%
Services sector*
19%
Automobile
industry
4%
Computer
software &
Hardware
6%
Construction development
11%
Telecommunications
7%
From above chart, it can be seen service sector has attracted highest FDI inflows since
April 2000.
The above 10 sectors have attracted around 70% of FDI inflows till March 2013.
Chart below shows FII flows in equity and debt from financial year 1993 to 2013.
FII Flows
2,000
Debt
1,500
Equity
` Bn
1,000
500
-500
-1,000
Source: SEBI
From above chart, its seen that FII flows to debt market have only being increased in
recent years.
Majority of FII flows are into equity market.
Except for 1999 and 2009, India has had positive FII equity inflows.