Current account surplus shrinks to $15.5 b in Q2: RBI

India’s current account surplus moderated to $15.5 billion in the second quarter of 2020-21 from $19.2 billion in the preceding quarter on account of a rise in the merchandise trade deficit, according to the Reserve Bank of India (RBI).

The current account saw a deficit of $7.6 billion in the year-ago quarter.

A current account surplus arises when the value of imports is less than the value of exports. A current account deficit arises when the value of imports is greater than the value of exports. As a percentage of GDP, the current account surplus was lower at 2.4 per cent in the July-September 2020 quarter against 3.8 per cent of GDP in the April-June quarter and a deficit of 1.1 in the year-ago quarter. The narrowing of the current account surplus in Q2 was on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter, according to RBI’s report on “Developments in India’s Balance of Payments during the Second Quarter”.

Net services receipts increased to $21.169 billion both sequentially ($20.505 billion) and on a year-on-year basis ($20.443 billion), primarily on the back of higher net earnings from computer services.

Private transfer receipts, mainly representing remittances by Indians employed overseas, at $20.4 billion in the reporting quarter declined on a y-o-y basis from $21.9 billion. The receipts, however, improved sequentially by 12 per cent from $18.2 billion.

Workers’ remittances improved to $12.664 billion in Q2 against $11.688 billion in the preceding quarter. Net accretion to non-resident deposits moderated to $1.9 billion from $2.3 billion in Q2 of 2019-20.

In the financial account, net foreign direct investment recorded robust inflow of $24.6 billion as compared with $7.3 billion in Q2 of 2019-20. Net foreign portfolio investment was $7.0 billion as compared with $2.5 billion in Q2 of 2019-20, largely reflecting net purchases in the equity market.

With repayments exceeding fresh disbursals, external commercial borrowings to India recorded net outflow of $4.1 billion in Q2 of 2020-21 as against an inflow of $3.1 billion a year ago.

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, the central bank said.