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India’s current account balance (CAB) recorded a surplus of $19.8 billion (3.9 per cent of GDP) in the first quarter (Q1: April-June) of 2020-21 on top of a surplus of $0.6 billion (0.1 per cent of GDP) in the preceding quarter (January-March of 2019-20).
Trade deficit
The surplus in the current account in the reporting quarter was on account of a sharp contraction in the trade deficit to $10 billion due to steeper decline in merchandise imports relative to exports on a year-on-year basis, according to the Reserve Bank of India’s statement on ‘Developments in India’s Balance of Payments During the First Quarter (April-June) of 2020-21.’
A surplus in the current account occurs when the value of imports is less than the value of exports. This usually leads to appreciation of the domestic currency, making imports cheaper.
India had recorded a deficit of $15 billion (2.1 per cent of GDP) a year ago [Q1 of 2019-20]. A deficit in the current account occurs when the value of imports is greater than the value of exports.
The RBI said net services receipts remained stable at $20.5 billion against $20.1 billion in the year ago quarter, primarily on the back of net earnings from computer services.
Also read India’s trade deficit with China shrunk to $5.8 billion in April-June this year
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.
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.
NRI deposits
In the financial account, net foreign direct investment recorded outflow of $0.4 billion as against inflows of $14 billion in Q1 of 2019-20.
Net foreign portfolio investment was $0.6 billion as compared with $4.8 billion in Q1 of 2019-20 as net purchases in the equity market were offset by net sales in the debt segment, the RBI said.
With repayments exceeding fresh disbursals, external commercial borrowings (ECBs) to India recorded net outflow of $1.1 billion in Q1 of 2020-21 against an inflow of $6 billion a year ago.
Net inflow on account of non-resident deposits increased to $3 billion from $2.8 billion in Q1 of 2019-20.
There was an accretion of $19.8 billion to the foreign exchange reserves (on a Balance of Payments basis) when compared to that of $14 billion in Q1 of 2019-20.
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