India’s Current Account Surplus Narrows As Demand Picks Up
India's current account balance fell even as it continued to maintain a surplus in the July-September quarter, led by a rise in the merchandise trade deficit.
Balance of payments data released by the RBI showed:
India’s current account surplus moderated to $15.5 billion in July- September from $19.2 billion in April-June.
As a percentage of the GDP, current account balance rose 2.4% in July-September compared with 3.8% in preceding quarter.
The surplus narrowed on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter.
There was an accretion of $31.6 billion to the foreign exchange reserves in BoP terms compared with $19.8 billion in the previous quarter.
This is third consecutive quarter that the economy has seen a current account surplus.
India’s current account surplus remained robust in Q2 FY2021, despite the entirely expected moderation from the level recorded in the lockdown quarter, given the rise in imports in tune with the resumption in economic activities.Aditi Nayar, Principal Economist, ICRA
“As the domestic recovery strengthens, we expect the current account surplus to decline substantially to under $5 billion in the second half of the financial year,” Nayar said. India’s current account balance is estimated at a surplus of $35-40 billion or around 1.5% of GDP in FY2021, according to Nayar.
Rahul Bajoria, chief India economist at Barclays, said while India's quarterly current account surplus moderated, its BoP surplus hit a record high given large FDI inflows. "Despite the expected moderation in the coming months, we continue to expect India to run two consecutive years of very large balance of payments surpluses, of $94.4billion and $65billion in FY21 and FY22, respectively."
Among key components, worker remittances contracted on expected lines.
Worker remittances fell 15.78% in July-September quarter on an annual basis compared with a 12.9% fall in April-June.
Net foreign direct investment recorded an inflow of $24.6 billion compared with an outflow of $0.4 billion in the previous quarter.
Net foreign portfolio investment rose to $7.0 billion versus $0.6 billion in the preceding quarter.
With repayments exceeding fresh disbursals, external commercial borrowings to India recorded a net outflow of $4.1 billion against an outflow of $1.1 billion in April-June.