India posts current account surplus of $19.8 bn as trade deficit narrows

Surplus in April-June 2020 (Q1Fy21) comes on top of a surplus of $0.6 billion (0.1 per cent of GDP) in the preceding quarter (Q4 Fy20), says RBI.

With sharp contraction in trade deficit, India’s current account balance recorded a surplus of $19.8 billion (3.9 per cent of gross domestic product, or GDP) in the first quarter (Q1) of 2020-21 (FY21). This contrasts with deficit of $15 billion (2.1 per cent of GDP) in April-June 2019 (Q1FY20).

The surplus in April-June 2020 (Q1FY21) comes on top of a surplus of $0.6 billion (0.1 per cent of GDP) in the preceding quarter (Q4FY20), said the Reserve Bank of India (RBI) statement. 

The surplus was due to sharp contraction in trade deficit to $10 billion, as the country’s merchandise imports declined sharply relative to exports on a year-on-year basis.

Aditi Nayar, principal economist, ICRA, said the current account surplus in Q1FY21 was well above expectations. The domestic and global lockdowns to fight Covid-19 exuded a differentiated impact on exports and imports.

The merchandise trade deficit shrunk to just $10 billion in Q1FY21, most of which was accounted for by the net oil balance, added Nayar.

Madan Sabnavis, chief economist, CARE Ratings, said going by the trends seen in July and August in trade, surplus may prevail in Q2FY21 as well.  “With GDP poised to decline in this quarter again, we can expect a current account surplus in the range of 2-3 per cent in Q2FY21,” added Sabnavis.

The net services receipts remained stable, primarily on the back of net earnings from computer services. The private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.2 billion — showing a decline of 8.7 per cent from their levels a year ago — the RBI said.

The net outgo from the primary income account, reflecting net overseas investment income payments, increased to $7.7 billion, from $6.3 billion a year ago.

In the financial account, net foreign direct investment recorded an outflow of $0.4 billion, against inflows of $14 billion in Q1FY20.

The net foreign portfolio investment was $0.6 billion, compared with $4.8 billion in Q1FY20, as net purchases in the equity market were offset by net sales in the debt segment.

With repayments exceeding fresh disbursals, external commercial borrowings to India recorded a net outflow of $1.1 billion in Q1FY21, against an inflow of $6 billion a year ago, it added.

The net inflow on account of non-resident deposits increased to $3 billion, from $2.8 billion in Q1FY20. There was accretion of $19.8 billion to the foreign exchange reserves (on a balance of payments basis), against $14 billion in Q1FY20.