India records highest-ever current account surplus in April-June quarter of FY21

According to RBI data, the net foreign direct investments recorded an outflow of $400 million (lower than inflows of $14 billion last year).

Published: 01st October 2020 12:47 AM  |   Last Updated: 01st October 2020 12:47 AM   |  A+A-

Money, notes, rupee

For representational purpose. (Photo | Sindhu Chandrasekaran)

Express News Service

Helped by weak economic activity and low oil prices, India recorded its highest-ever quarterly current account surplus of $19.8 billion or 3.9 per cent of GDP in the April-June quarter.

During the quarter, the country imported goods worth $62.3 billion, and exported goods worth $52.3 billion, leading to a $10 billion trade deficit. Imports plunged sharper, from $129.5 billion during the same quarter last year, compared to exports ($82.7 billion) on account of the precipitous fall in domestic demand prompted by Covid-induced lockdown. A surplus of $0.6 billion (0.1% of GDP) was recorded in the preceding quarter.

Although it is quite surprising that the trade deficit didn’t come down as sharply as expected, "this is evidently good news as it has helped the overall balance to increase from about $ 14 billion in Q1-FY20 to $19.8 billion in Q1-FY21," said Madan Sabnavis, chief economist at Care Ratings.

However, the boost in surplus is likely to be short-lived once demand-supply situation normalises. It may also be noted that the higher surplus came during the same quarter which saw the economy contract 23.9 per cent.

Data released by the Reserve Bank of India (RBI) showed flows from the country's services sector remained stable with inflows of $46.8 billion and outflows of $26.3billion, leading to a $20.5 billion surplus. Net outgo from the primary income account, primarily reflecting net overseas investment income payments, rose to $ 7.7 billion from $6.3 billion a year ago.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $18.2 billion, a decline of 8.7 per cent from their level a year ago. Put together, the current account stood at a credit of $122.4 billion and a debit of $102.6 billion, resulting in a positive balance of $19.8 billion. According to RBI data, the net foreign direct investments recorded an outflow of $400 million (lower than inflows of $14 billion last year). However, experts say, it is expected to rebound in the coming quarters as the pipeline of FDI inflows, led by Reliance, appears robust.

After experiencing a similar shock in April 2020 during the peak lockdown, merchandise exports and imports have displayed a varied recovery in the subsequent four months.

“We expect imports to stage a relatively faster recovery in the second half of FY21, 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,” said Aditi Nayar, principal economist, ICRA.

The dominant view is that India will display a sharp current account surplus of $35 billion or around 1.4% of GDP in FY21, before swinging back to deficits in the next financial year.


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