Net services earnings may fall after 9 years.

MUMBAI: India’s net earnings from trade in services such as software and consultancy are headed for the first fall in a decade, leaving the rupee’s value at the mercy of overseas investment flows.

Exports of services other than software may not be accelerating as fast as merchandise exports since they are not so essential for crisis-hit Western economies.

Net invisibles, the difference between income and expenditure on items such as travel, insurance and software, fell 7.7% in the nine months ended December, preliminary RBI data show. It last fell in the fiscal year ended 2001.

Trade deficit, net of export receipts and import bills paid, was at $30.73 billion in the quarter ended December ‘09, compared with $34.04 billion in the year-ago period. But the surplus from invisibles, which fund more than 60% of the country’s trade deficit, fell to $18.7 billion in the December quarter from $22.38 billion in the same quarter a year ago.

The fall in net earnings from invisibles could make the rupee unstable against the dollar as the rupee rally last quarter, the second straight one, was more due to portfolio investments than improvement in trade. The rupee’s rise against the dollar is crimping profits of exporters at a time when competitor China is holding its currency, helping exports, despite calls for appreciation.

“The rupee is in an appreciating trend,” said Sidharth Sanyal, economist, Edelweiss Securities. “Typically, bulk of inflows tend to bunch in the fourth quarter; hence, one does not expect too much of appreciation in the first quarter.”

The current account deficit remained almost flat at $12 billion in the December '09 quarter, compared with $11.67 billion a year earlier, as lower trade deficit, software exports and overseas Indians' remittances were offset by a sharp fall in non-software services, data show.

The current account records transactions against purchase of goods and services or income from a service, and capital account inflows are investments or debt, which are more volatile in nature. The balance of payments is the nation's balance sheet of current and capital account transactions.

Foreign investments, both direct and portfolio, were about $10 billion in the quarter, against an outflow of $5.4 billion, leading to a capital account surplus and an overall balance of payments surplus of $1.77 billion compared to a deficit of $6.11 billion a year ago.

Net remittances by overseas Indians under the head 'private transfers' rose to $12.77 billion from $9.96 billion a year earlier. Net software earnings for the quarter were $12.66 billion, up from $10.69 billion in the corresponding quarter a year earlier.

In the capital account, net inflows surged sharply to $14.7.6 billion compared to outflows of $6.11 billion in the year-ago period.

Source : The Economic Times