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India records current account surplus of 0.1% of GDP, at $600 mn in Q4

As against this, there was a deficit of $4.6 bn, or 0.7% of GDP in the year ago quarter and $2.6 billion (0.4% of GDP) in Q3 of 2019-20

Gross domestic product | ICRA | foreign portfolio investments

Anup Roy  |  Mumbai 

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Excluding the valuation effect, the increase in external debt would have been $32.0 billion instead of $15.4 billion at end-March 2020 over end-March 2019.

India’s current account turned surplus, albeit marginally, in the fourth quarter of FY20 as trade deficit narrowed, the Reserve Bank of India (RBI) said on Tuesday.

The current account balance turned surplus by $0.6 billion, or 0.1 per cent of (GDP), in Q4FY20 as against a deficit of $4.6 billion, or 0.7 per cent of GDP, in the year-ago quarter and $2.6 billion (0.4 per cent of GDP) in Q3.

“The surplus was primarily on account of a lower trade deficit at $35 billion and a sharp rise in net invisible receipts at $35.6 billion as compared with the corresponding period of last year,” the RBI said.

On a full-year basis, though, the current account deficit narrowed to 0.9 per cent of GDP, from 2.1 per cent in FY19, helped by trade deficit shrinking to $157.5 billion from $180.3 billion in FY19.

Aditi Nayar, principal economist at ICRA, said the current account surplus came as a surprise, as she was expecting deficit of $5.5-6.5 billion, or 0.8 per cent of GDP, in Q4.

Nayar said she expects India to report a current account surplus of $20-22 billion in FY21, based on a “faster normalisation in merchandise exports relative to imports, a stabilisation in crude oil prices at a moderate level, a revival in demand for gold closer to the festive season, and some shrinkage in remittances owing to the economic uncertainty”.

Net services receipts increased on the back of a rise in net earnings from computer and travel services on a year-on-year (YoY) basis. Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to $20.6 billion, up 14.8 per cent from a year ago. Net outgo from the primary income account, reflecting net overseas investment income payments, decreased to $4.8 billion, from $6.9 billion a year ago.

Foreign investment

Net foreign direct investment was at $12.0 billion, higher than $6.4 billion in Q4FY19. Foreign portfolio investment (FPI) declined $13.7 billion as against an increase of $9.4 billion in Q4FY19 due to net sale in both the debt and equity markets. Net inflow on account of external commercial borrowings to India was $9.4 billion, compared to $7.2 billion a year ago.

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“Owing to Covid-19-related uncertainty, net inflows under ‘other capital’ surged during the quarter, reflecting inter alia the FPIs’ outstanding balances with custodian banks and pending issuance of shares by FDI companies,” the central bank said.


Net FDI in FY20 was at $43 billion compared with $30.7 billion in 2018-19. Portfolio investment increased $1.4 billion in 2019-20, against an outflow of $2.4 billion a year ago. During the year, there was an accretion of $59.5 billion to foreign exchange reserves, the RBI said.

External debt

India’s external debt, at the end of FY20, was at $558.5 billion, increasing by $15.4 billion over its level at March-end 2019. During the year, the country gained $16.6 billion through valuation gains due to the appreciation of the US dollar vis-à-vis the rupee and other major currencies.

Excluding the valuation effect, the increase in external debt would have been $32 billion instead of $15.4 billion at the end of FY20 over end-March 2019. “Commercial borrowings remained the largest component of external debt, with a share of 39.4 per cent, followed by non-resident deposits (23.4 per cent) and short-term trade credit (18.2 per cent),” the RBI said.

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At March-end this year, the total debt with a maturity of more than a year was $451.7 billion, increasing $17 billion YoY. The share of short-term debt — that matures within a year — in total external debt declined to 19.1 per cent at the end of FY20, from 20 per cent at March 2019. The ratio of short-term debt to foreign exchange reserves declined to 22.4 per cent in 2019-20, against 26.3 per in 2018-19.

“The US dollar-denominated debt continued to be the largest component of India’s external debt, with a share of 53.7 per cent at end-March 2020, followed by the Indian rupee (31.9 per cent), yen (5.6 per cent), special drawing rights (4.5 per cent) and the euro (3.5 per cent),” the RBI said.

Net claims of non-residents fell $45.8 billion to $379.3 billion in March 2020. The decline in net foreign-owned assets in India was due to a reduction of $28.1 billion in the non-residents’ assets combined with an increase of $17.7 billion in Indian residents’ foreign assets.

First Published: Tue, June 30 2020. 19:15 IST