Tag: current account surplus

India reports current account surplus of 0.9% in pandemic-affected FY21

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India reported a current account surplus of 0.9 per cent of GDP in the pandemic-hit FY21, as against a deficit of 0.9 per cent in FY20, data released by the RBI showed on Wednesday. The country’s current account deficit widened to USD 8.1 billion or 1 per cent of GDP for the March quarter, as against a surplus of USD 0.6 billion or 0.1 per cent of the GDP in the year-ago period and a deficit of 0.3 per cent in the preceding December quarter, as per the central bank data.

The CAD, the gap between the country’s overall foreign receipts and payments, is an important factor representing a nation’s external sector’s strength. The Reserve Bank of India said the current account balance swung into the surplus territory on the back of a sharp contraction in the trade deficit to USD 102.2 billion from USD 157.5 billion in 2019-20.

Net invisible receipts were lower in FY21 due to an increase in net outgo of overseas investment income payments and lower net private transfer receipts, even though net services receipts were higher than the year-ago period, it said. Despite the pandemic, the net foreign direct investment inflows at USD 44 billion were higher in FY21 than the USD 43.0 billion in 2019-20, the central bank added.

Net foreign portfolio investments also increased by USD 36.1 billion in FY21 as compared to USD 1.4 billion a year ago, it said. External commercial borrowings by India Inc recorded an inflow of USD 0.2 billion as compared to USD 21.7 billion in 2019-20, the RBI data showed.

There was an accretion of USD 87.3 billion to foreign exchange reserve on a balance of payments basis, it said. The current account deficit in the March quarter was higher primarily on account of a higher trade deficit and lower net invisible receipts than in the corresponding period of the previous year, the RBI said.

Private transfer receipts, mainly representing remittances by Indians employed overseas, increased to USD 20.9 billion, up by 1.7 per cent from the year-ago level. Net outgo from the primary income account, primarily reflecting net overseas investment income payments, increased to USD 8.7 billion from USD 4.8 billion a year ago, according to the data.

The net FDI came at USD 2.7 billion during the March quarter as against USD 12 billion in the year-ago period. Net foreign portfolio investment (FPI) increased by USD 7.3 billion mainly on account of net purchases in the equity market as against a decline of USD 13.7 billion in Q4 FY20. Net external commercial borrowings to India was lower at USD 6.1 billion in the March quarter as compared to USD 9.4 billion a year ago, the RBI said.

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India likely to report current account surplus for current fiscal year: Adviser

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India is likely to report a current account surplus at the end of the current financial year ending in March 2021, mainly led by a fall in imports, the chief economic adviser at the ministry of finance said on Monday.

India’s current account surplus rose to a record USD 19.8 billion in April-June as its trade deficit narrowed sharply, the Reserve Bank of India said earlier.

Demand for imports has fallen amid the COVID-19 pandemic, coupled with recent economic reforms initiated by the government to boost manufacturing, Krishnamurthy Subramanian told a virtual conference organised by Confederation of Indian Industry (CII).

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Is current account surplus good or bad? Experts discuss

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India posted a current account surplus in the April, May and June quarter. This is for the first time in seventeen years that India has posted a current account surplus. The negative from this is that it has come from a very sharp drop in imports because of economy’s inability to consume. However, the positive, some economists say, is that it makes it easy for government to run up a larger fiscal deficit. How was the fiscal deficit connected to current account surplus and more importantly will the current account surplus situation continue?

Sajjid Chinoy, Chief India Economist at JPMorgan, Samiran Chakraborty, Chief Economist – India at Citi and Ananth Narayan, professor of Finance at SP Jain Institute of Management and Research (SPJIMR) discussed in detail.

“We think the current account surplus will sustain at least for this fiscal year. This year we are quite certain that we will get a surplus of 1.5 percent of gross domestic product (GDP), next year if the economy recovers faster and households have more confidence about the future then you would expect them to mark savings rates down,” said Chinoy.

“The longer the shock perseveres and the more uncertainty there is about the future, the higher will savings rate be for the private sector and that should all else equal result in a lower current account balance,” Chinoy added.

“Our number is 1.2 percent of GDP but next year I think it will depend a lot on these nominal variables, gold prices, oil prices etc,” said Chakraborty.

“What we are seeing this year is a forced austerity shock because of the COVID situation. This year will be a current account surplus, I think it will be closer to 2 percent of the GDP,” said Narayan.

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India records highest-ever current account surplus in Q1 but…

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India recorded its highest-ever quarterly current account surplus of $19.8 billion in the April-June quarter, as a sharp fall in imports during the lockdown helped bring down the trade balance.

The current account balance is the difference in outflow and inflow of money from and into the country from trade, services, remittances, tourism and dividends.

Economists, however, pointed out that the increase in the current account balance was because the country spent little on imports as the economy was in lockdown for most parts of the quarter.

“The current account surplus is inversely related to economic activity,” said Neeraj Gambhir of Axis Bank. “It is high in the same quarter when the economy contracted 25 percent.”

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. (Comparatively, in the same quarter last year, India imported and exported goods worth $129.5 billion and $82.7 billion, leading to a $46.8 billion trade deficit.)

Flows from the country’s services sector remained stable with inflows of $46.8 and outflows of $26.3, leading to a $20.5 billion surplus.

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.

While private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $ 18.2 billion, a decline of 8.7 percent from their level a year ago.

Put together, the country’s current account stood at a credit of $122.4 billion and a debit of $102.6 billion, leading to a positive balance of $19.8 billion.

“This is good news to the extent that a surplus helps the currency but it is not good news for the state of the demand in the economy,” Indranil Pan, Chief Economist at IDFC First Bank, told CNBC-TV18. “The reduction in trade imports was driven by both oil and gold imports as well as non-oil, non-gold imports.”

The currency market was expecting a surplus, said Gambhir of Axis Bank, and the data will not help the rupee much.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Coronavirus impact: Barclays pegs $20 billion current account surplus in FY21

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As imports continue to plunge due to the coronavirus-driven disruptions globally, India may end the current fiscal with a record surplus of about USD 20 billion or 70 bps of the GDP, says a report.

The country has been perennially struggling with huge current account deficits.

The last time the country had a current account surplus was in the first quarter of 2006-07, again due to the cheaper crude, according to an analysis by foreign brokerage Barclays on Tuesday.

In fact, the exim trade has been balancing through 2019 due to the worsening growth momentum.

Following the nationwide lockdown since March 25, and the full of April, both exports and imports plummeted to all-time lows in April.

Given the near complete closure of the ports, exports plunged by 60 per cent in the month, while imports collapsed by 59 per cent in April, resulting in the smallest monthly trade deficit in four years.

“We expect merchandise trade deficit to continue to narrow and forecast a shortfall of just USD 103 billion or 3.7 per cent of GDP in FY2020-21, relative to a trade deficit of 5.3 per cent of GDP in FY2019-20,” the report said.

In fact, the steadily slowing economy has ensured that imports are also falling along with exports, leading to improvements in external position since the first half of FY19, with the current account deficit narrowing to USD 27 billion in FY2019 from USD 66 billion in FY2018, driven largely by a smaller trade deficit.

“Our current account tracker points to a small current account deficit of USD 3 billion in Q1, followed by successive ‘unwelcome’ surpluses, mirroring subdued economic activity. Given this, we raise our account surplus forecast to USD 19.6 billion or 0.7 percent of GDP for FY21, up from USD 10 billion previously forecast,” Barclays said.

It also forecasts USD 8 billion in current account surplus in the second quarter of FY2021, the first since the first quarter of FY2007.

Explaining the ‘unwelcome surplus’ the report says it is an unwelcome development as the surplus will be driven almost entirely by the lockdown of the economy to contain the pandemic outbreak, and helped by the plunge in crude prices and not by excess exports earnings over imports.

The report further noted that while low crude prices are serving as a tailwind for the economy, the bigger impact on the current account balance will come from lower demand for both oil and non-oil imports.

But some of these gains will be lost due to the pandemic-induced hits to service exports to the pandemic-ravaged the US and the Middle East, as well as well as remittance inflows, warns the report.

The report also expects the rising tide of capital outflows seen since March after a record surge earlier to stabilise in the second quarter of FY2021, but result in only a modest capital account surplus.

“But we still expect an overall balance of payments surplus of about USD 38 billion in FY21,” says the report, adding another plus point is the surging forex reserves which are set to scale past the USD 500-billion-market by the end of the fiscal, from USD 486 billion now.

The central bank has absorbed a large amount of inflows and accumulated USD 51 billion in forex reserves between end-September 2019 and April 2020.

The country’s goods trade position has been improving since mid-2019, with the deficit steadily narrowing to USD 6.8 billion in April 2020. In 2019, the trend of exports growing marginally faster than imports resulted in a structural decline in the goods trade deficit.

Oil consumption eased in March and collapsed in April, falling to 55 per cent of the past year’s average, and pulled down oil refiners’ capacity by 50 per cent.

Also, gold import bill has shrunk despite higher gold prices, with imports falling to USD 3 million in April from USD 1.2 billion in March – pulling down non-oil, non-gold imports (core imports) by 52 per cent in April.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow