Government expects current account surplus in Q1 FY21 : 22-06-2020

The government expects a surplus in its current account balance for the first quarter of the ongoing fiscal and in the final quarter of the previous fiscal on account of curtailed imports due to a significant drop in domestic economic activity, according to an official report.

“As a considerable drop in domestic economic activity significantly curtails imports, India’s current account balance may generate a small surplus in the first quarter of 2020-21,” said the May 2020 macroeconomic report released by the ministry of finance.

India’s current account deficit (CAD) was also supported by low levels of external debt servicing, it added.

“During COVID-19 times, the external debt and its repayment burden is a major challenge being faced by some emerging market economies. However, India is not vulnerable on this count as its external debt to GDP ratio has remained low at about 20 percent during the last three years,” the report said.

Earlier reports by the State Bank of India (SBI) research team and Barclay’s had forecast an “unwelcome” current account surplus for FY21, starting with the first quarter.

According to an April SBI research report, the country could see a current account surplus of 0.7% of gross domestic product (GDP) at $19 billion this fiscal owing to a collapse in oil prices and an expected 25% decline in merchandise imports.

Similarly, Barclay’s projected a 0.7% of GDP surplus in India’s current account for FY21 at $19.6 billion. “While low oil prices are serving as a tailwind for the economy, we think the bigger impact on the current account balance will come from reduced demand for both oil and non-oil imports,” wrote Rahul Bajoria, chief India economist at Barclays in a May report.

According to the government report, net foreign direct investment inflows rose from $1.98 billion in February 2020 to $2.87 billion for the March. This resulted in a cumulative net inflow of $42.7 billion during FY20, up from $30.7 billion a year ago.

However, the country took a hit on foreign portfolio investment as it witnessed a sharp outflow of $16.16 billion in March this year compared to an inflow of $1.02 billion during the previous month, the report said. The resulting cumulative net outflow of $140 million in FY20 was still lower compared to net outflow of $620 million of the previous fiscal.

Source : Financial Express