India ends FY21 with current account surplus for first time in 17 years

India’s current account in the balance of payments ended in a surplus to the extent of 0.9 per cent of GDP in FY ’21 for the first time in 17 years amid a trade surplus due to contraction in pandemic induced import demand. But as the economy opened up in the latter parts of the year, the fourth quarter ending March’21 ended in a deficit.

The current account balance- comprising net of India’s export of goods and services- recorded a surplus of 0.9 per cent of GDP in 2020-21 as against a deficit of 0.9 per cent in 2019-20 on the back of a sharp contraction in the trade deficit to $ 102.2 billion from $ 157.5 billion in 2019-20, according to the preliminary numbers released by the Reserve Bank of India. The last time the current account ended in a surplus for a whole fiscal was in 2003-4 when the surplus touched 2.3 per cent of GDP.

For the first time the current account has been supported by merchandise trade surplus, while invisibles comprising services, transfers, investment and travel receipts and payments slowed down. Net invisible receipts were lower in 2020-21 due to increase in net outgo of overseas investment income payments and lower net private transfer receipts, even though net services receipts were higher than a year ago RBI said. Overall, the balance of payments ended in a surplus of $87 billion during the year on strong capital flows, with a bulk of the flows through foreign direct investment and portfolio flows.

But the current account ended in a deficit of $ 8.1 billion (1.0 per cent of GDP) in Q4’2020-21 as against a surplus of $ 0.6 billion (0.1 per cent of GDP) in Q4’2019-20. “A normalisation in import demand as well as a surge in gold imports contributed to the widening of the current account deficit in Q4’2021 in spite of the massive increase in exports in March 2021″ said Aditi Nayar, Chief Economist, Icra.

The current account is expected to widen in coming quarters as India slowly lifts lockdown restrictions and economic activity picks up. ” With activity continuing to normalize and higher commodity prices, the current account deficit is likely to widen in the coming quarters, in our view” said Rahul Bajoria, chief India economist, Barclays Capital.

India’s external debt for FY’2021 rose 2.1 per cent to 570 billion in FY’21 largely on account of increase in government debt and NRI deposits. Short-term debt accounted for around 17per cent of total debt and foreign exchange reserves latest RBI data said. While valuation changes accounted for about $12 billion of the $99 billion added to the reserves in FY’21.

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