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India’s current account balance recorded a deficit of $1.7 billion in the third quarter of 2020-21 after recording surplus in the first and second quarters due to a rise in the merchandise trade deficit and an increase in net investment income payments.
The country recorded a current account surplus of $15.5 billion and $19.2 billion in the second quarter and first quarter of 2020-21, respectively.
India recorded a deficit of $2.6 billion in current account balance in the year ago (Q3FY20) period.
Current account deficit arises when the value of imports is greater than the value of exports. Current account surplus arises when the value of imports is less than the value of exports.
As a percentage of GDP, the current account balance in the October-December (Q3) 2020 quarter was at 0.2 per cent (0.4 per cent in the year ago quarter).
The current account balance was at 2.4 per cent of GDP in the July-September (Q2) 2020 quarter and 3.7 in the April-June (Q1) quarter.
Underlying the current account deficit in Q3:2020-21 was a rise in the merchandise trade deficit to $34.5 billion from $14.8 billion in the preceding quarter, and an increase in net investment income payments, RBI said in a statement.
Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, observed that after posting two consecutive surpluses, India’s current account went back to its ‘normal’ deficit in the last quarter of calendar year 2020.
“The normalisation in current account dynamics was largely the result of a wider goods trade deficit, which appears to be normalising rapidly amid a fast economic recovery.
“...Indeed, the goods trade deficit is now back above pre-Covid levels, and we expect this trend to continue in coming quarters, as activity levels improve and international commodity prices remain elevated,” said Bajoria.
As per RBI data, net services receipts increased to $23.6 billion, both sequentially (from $21.169 billion in Q2FY2021) and on a year-on-year basis ($21.9 billion), primarily on the back of higher net export earnings from computer services
Private transfer receipts, mainly representing remittances by Indians employed overseas, declined marginally on a y-o-y basis but improved sequentially by 1.5 per cent to $20.7 billion in Q3:2020-21.
Net outgo on the primary income account, primarily reflecting payments of investment income, increased to $10.1 billion from $7.4 billion a year ago.
FDI inflow
In the financial account, net foreign direct investment (FDI) recorded robust inflow of $17.0 billion as compared with $9.7 billion in Q3:2019-20.
Net foreign portfolio investment (FPI) was $21.2 billion as compared with $7.8 billion in Q3:2019-20, primarily reflecting net purchases by foreign portfolio investors in the equity market.
With repayments exceeding fresh disbursals, external commercial borrowings to India recorded net outflow of $1.7 billion in Q3:2020-21 as against an inflow of $3.2 billion a year ago. Net accretions to non-resident deposits increased to $3.0 billion from $0.8 billion in Q3:2019-20.
The central bank said there was an accretion of $32.5 billion to the foreign exchange reserves (on a Balance of Payments basis) as compared with that of $21.6 billion in Q3:2019-20.
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