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India posts healthy current account surplus of $19.8bn in Q1FY21

In the financial account, net foreign direct investment recorded outflow of $0.4 billion as against inflows of $14 billion in Q1 of 2019-20.

India posts healthy current account surplus of $19.8bn in Q1FY21

As per the RBI's statement, net services receipts remained stable, primarily on the back of net earnings from computer services. (Photo: iStock)

India posted a healthy current account surplus in Q1FY21 on the back of a lower trade deficit, official data showed on Wednesday.

The Reserve Bank of India’s data on India’s Balance of Payments (BoP) showed that on a year-on-year basis, the Q1FY21 surplus stood at $19.8 billion from a deficit of $15 billion reported for the corresponding period of the previous fiscal.

“India’s current account balance (CAB) recorded a surplus of $19.8 billion (3.9 per cent of GDP) in Q1 of 2020-21 on top of a surplus of $0.6 billion (0.1 per cent of GDP) in the preceding quarter, i.e, Q4 of 2019-20; a deficit of $15 billion (2.1 per cent of GDP) was recorded a year ago,” an RBI statement said.

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“The surplus in the current account in Q1 of 2020-21 was on account of a sharp contraction in the trade deficit to $10 billion due to steeper decline in merchandise imports relative to exports on a year-on-year basis.”

As per the RBI’s statement, net services receipts remained stable, primarily on the back of net earnings from computer services.

However, private transfer receipts, mainly representing remittances by Indians employed overseas, declined by 8.7 per cent to $18.2 billion from their level a year ago.

“Net outgo from the primary income account, primarily reflecting net overseas investment income payments, increased to $7.7 billion from $6.3 billion a year ago,” the statement said.

“In the financial account, net foreign direct investment recorded outflow of $0.4 billion as against inflows of $14 billion in Q1 of 2019-20.”

In terms of market investment, the data showed that net foreign portfolio investment was $0.6 billion as compared with $4.8 billion in Q1 of 2019-20 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 net outflow of $1.1 billion in Q1 of 2020-21 as against an inflow of $6 billion a year ago,” the statement said.

“Net inflow on account of non-resident deposits increased to $3 billion from $2.8 billion in Q1 of 2019-20. There was an accretion of $19.8 billion to the foreign exchange reserves (on a BoP basis) as compared with that of $14 billion in Q1 of 2019-20.”

Aditi Nayar, Principal Economist, ICRA, said: “The current account surplus in Q1FY21 was well above our expectations, as the fall in remittances was remarkably muted, despite the adverse economic conditions globally amid the ongoing pandemic. With the domestic and global lockdowns to fight Covid-19 exuding a differentiated impact on exports and imports, the merchandise trade deficit shrank to just $10 billion in Q1FY21, most of which was accounted for by the net oil balance.”

“Further, ICRA expects merchandise imports to stage a relatively faster recovery in H2FY21, with the economy slowly grinding to a new normal, the stabilisation in commodity prices and relatively sticky demand for gold closer to the festive and marriage season. Simultaneously, the fresh restrictions that may be warranted in some major trading partners to ward off rising Covid-19 infections, are likely to arrest the further normalisation in exports.”

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