India's current account surplus moderates in Q2 due to merchandise trade

Net services receipts rose both sequentially and year-on-year, primarily on the back of higher net earnings from computer services

India’s current account surplus moderated to $15.5 billion (2.4 per cent of Gross Domestic Product) in quarter ended September 2020 (Q2FY21) from $19.2 billion (3.8 per cent of GDP) in (Q1FY21).

The current account balance was in deficit to the tune of $7.6 billion in Q2 of 2019-20 (1.1 per cent of GDP), according to Reserve Bank of India data.

The narrowing of the current account surplus in Q2 of 2020-21 was on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter.

Aditi Nayar, Principal economist, Icra said the current account surplus in Q2 FY2021 printed modestly higher than the rating agency's expectation of $13-14 billion, led by a slightly narrower merchandise trade balance and a larger than expected revival in remittances.

The country’s current account surplus in the April-September 2020 (H1FY21) was 3.1 per cent of GDP as against a deficit of 1.6 per cent in H1FY20 on the back of a sharp contraction in the trade deficit.

India’s current account balance is expected to post a surplus of $35-40 billion or around 1.5 per cent of GDP in FY2021, Nayar added.

Referring to trade in services, RBI said the net services receipts increased both sequentially and on a year-on-year basis, primarily on the back of higher net earnings from computer services.

Private transfer receipts, mainly representing remittances by Indians employed overseas, declined on a year-on-year basis. But they improved sequentially by 12 per cent to $20.4 billion in Q2 2020-21.

With repayments exceeding fresh disbursals, external commercial borrowings into India recorded net outflow of $4.1 billion in Q2 of 2020-21 as against an inflow of $ 3.1 billion a year ago.

There was an accretion of $31.6 billion to the foreign exchange reserves (on a Balance of Payments basis) as compared with that of $5.1 billion in Q2 of 2019-20.

Net outgo from the primary income account, primarily reflecting net overseas investment income payments, increased to $9.3 billion from $8.8 billion a year ago, RBI said.