After remaining in surplus for three quarters, India’s current account balance recorded a deficit of $1.7 billion (0.2 per cent of Gross Domestic Product – GDP) in the quarter ended December 2020 (Q3FY21).
However, the current account remained in surplus at 1.7 per cent for April-December 2020 as against in a deficit of 1.2 per cent in April-December 2019 on the back of a sharp contraction in the trade deficit, according to Reserve Bank of India.
The balance was in surplus at $15.1 billion (2.4 per cent of GDP) in Q2FY21 and $19.0 billion (3.7 per cent of GDP) in Q1FY21. It had posted a surplus of $0.6 billion (0.1 per cent of GDP) in quarter ended March 2020 (Q4 of 2019-20). It had posted a deficit of $2.6 billion (0.4 per cent of GDP) in quarter ended December 2019 (Q3FY20).
RBI in a statement said underlying the current account deficit in Q3FY21 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.
Aditi Nayar, Principal Economist, ICRA said as anticipated, the recovery in domestic demand during the festive quarter pushed India’s current account balance back into a small deficit (of $1.7 billion in Q3FY21). The size of the current account deficit is expected to enlarge to $5-7 billion in Q4 FY21, with the Covid-19 vaccines’ rollout improving sentiment and pushing up commodity prices, as well as a resurgence in the domestic demand for gold. ICRA expects an aggregate current account surplus of $25-27 billion in FY21.
Net services receipts increased, both sequentially and on a year-on-year basis, 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 Q3FY21.
On Balance of payments basis, there was an accretion of $32.5 billion to the foreign exchange reserves in Q3FY21 as against $21.6 billion in Q3FY20. Also, the addition to foreign exchange reserves was $83.9 billion in April-December 2020 as against $40.7 billion in April- December 2019.
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