Finace And Stock

Remittances, IT exports propel current account to a surplus in June quarter

Higher software services income and inward remittances by the Indian diaspora made up for a sharp rise in the crude import bill and helped the current account in the balance of payments end in a surplus for the quarter ended June’21. Also, the slowdown in the economy induced by the second lockdown during the quarter resulted in a lower trade deficit.

India’s current account comprising the net of India‘s export of goods and services recorded a surplus of $ 6.5 billion or 0.9 per cent of GDP in Apeil-June’21 quarter as against a surplus of $ 19.1 billion or 3.7 per cent of GDP a year ago, according to the preliminary numbers released by the Reserve Bank of India.

” The impact of the second wave of Covid-19 on demand for fuel and gold in particular, compressed the trade deficit leading to a current account surplus of $6.5 billion in Q1 FY2022″ said Aditi Nayyar, chief economist at ratings firm Icra.” However, the size of the surplus was higher than our forecast, led by an encouraging performance of the services sector and secondary income”.

Income from exports if software services rose 21 per cent during the quarter to $25 billion. Private transfers, mainly representing remittances by Indians employed overseas, amounted to $ 20.9 billion, up 14.8 per cent from their level a year ago, the central bank said in its release.

” Noteworthy development is the record high services trade surplus of USD 25.8 bn on a quarterly basis” said Vivek Kumar , economist at research firm, QuantEco Research. ” While it underscores the resilience in the tradable services category, it also highlights the underlying global emphasis on digitalization of the economy post COVID.”

The surplus in current account is not expected to last long as the economy returns back to the pre-COVID levels. ” With impact from elevated global commodity prices also filtering through, this will ensure current account switching back to deficit in the rest of the financial year” Kumar said.

Icra expects current account deficits of around $10-12 billion each in Q3 and Q4 of FY2022, as demand recovers and economic activity reverts above pre-Covid levels.

Among the major components of capital flows, net foreign direct investment recorded inflow of $ 11.9 billion as against outflow of $ 0.5 billion in the same period a year ago. Net foreign portfolio investment was $ 0.4 billion as compared with $ 0.6 billion in Q1’2020-21. Net external commercial borrowings to India recorded inflow of $ 0.5 billion in Q1’2021-22 as against an outflow of $ 0.6 billion a year ago. Net inflow on account of non-resident deposits decreased to $ 2.5 billion from $ 3.0 billion in Q1:2020-21.

Overall, the balance of payments ended in a surplus of $ 31.9 billion as compared with that of $ 19.8 billion in Q1’2020-21.

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