India's Current Account Surplus Moderates to $15.5 Billion in Q2 Due to Merchandise Trade

The current account surplus of India moderated to $15.5 billion (2.4 percent of Gross Domestic Product) in quarter ended September 2020 (Q2FY21) from $19.2 billion (3.8 percent of GDP) in (Q1FY21). According to Reserve Bank of India data, the current account balance was in deficit to the tune of $7.6 billion in Q2 of 2019-20 (1.1 percent of GDP).

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 stated that 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 percent of GDP as against a deficit of 1.6 percent in H1FY20 on the back of

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

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 percent of GDP in FY2021, Aditi 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 percent 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. The RBI also said that the 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.