India records current account deficit of 0.2% in December quarter

The current account in the balance of payments ended in a deficit during the quarter ended December’20 for the first time in the current financial year as the economy unlocked and the demand revived amid rising crude and commodity prices. Besides, foreign investors also took back home higher amounts from their investments in India.

India’s current account deficit – excess of India’s imports of goods and services- recorded a deficit of $ 1.7 billion or 0.2 per cent of GDP in Q3’2020-21 after a surplus of $ 15.1 billion or 2.4 per cent of GDP in Q2’2020-21 and $ 19.0 billion or 3.7 per cent of GDP in Q1’2020-21, according to the preliminary figures released by the Reserve Bank of India. The deficit was much lower in the Q3 of FY’2019-20 at $ 2.6 billion or 0.4 per cent of GDP

The Reserve Bank attributed this to the rise in merchandise trade deficit as well higher outflow of investment income. ” 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” the Reserve Bank said in a release.

The trade deficit was largely on account of rise in import bill reflecting a rise in import demand as economy started recovering post the lockdown. ” As anticipated, the recovery in domestic demand during the festive quarter pushed India’s current account balance back into a small deficit of US$1.7 billion in Q3 FY2021, after the large surpluses recorded amidst the pandemic in Q1 and Q2 FY2021″ said Aditi Nayyar, chief economist at ratings firm Icra.

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Net outgo on account of investment income, increased to S$ 10.1 billion from $ 7.4 billion a year ago as foreign portfolio investor poured in record amounts in Indian stocks. Net foreign portfolio investment was $ 21.2 billion during October-December’20 compared to $ 7.8 billion in the same period a year ago, RBI said.

But earnings from software services exports were higher at $23.4 billion compared to $ 21. 5 billion in the same period last year.

In the capital account, 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.

Overall capital account surplus was higher during the quarter was almost 50 per cent higher at $33.5 billion compared to $22.4 billion in the same period last year. The overall balance of payments surplus during the quarter amounted to $32.5 billion compared to $ 21.6 billion in the same period a year ago.



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