Current account surplus at 2.4% of GDP in Q2, $32 billion added to reserves: RBI

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December 31, 2020 6:30 AM

On a balance of payment basis, Q2 saw net accretion of a robust $31.6 billion to the country’s forex reserves in Q2, compared with $19.8 billion in the previous quarter.

Trade deficit touched $18.6 billion in October-November.Trade deficit touched $18.6 billion in October-November.

India produced current account surplus for the third straight quarter in Q2FY21, but the surplus moderated to $15.5 billion or 2.4% of the gross domestic product (GDP) in the quarter from $19.2 billion (3.8%) in Q1, according to data released by the Reserve Bank of India.

The surpluses have been enabled by a narrowing of the country’s usually very large merchandise trade deficit. This is primarily due to steeper decline in imports relative to exports, which reflects a demand slump in the economy.

Pertinently, the capital account — which is usually in considerable surplus but saw only a relatively small surplus of $1 billion in Q1— reported a robust surplus of $15.4 billion in Q2.

Strong net FDI inflows of $25.6 billion boosted the capital account in Q2 (net FDI was minus $0.8 billion in Q1), while portfolio flows also improved sequentially (net inflows of $7 billion was recorded in Q2 largely reflecting net purchases in the equity market against just $0.6 billion in Q1).

On a balance of payment basis, Q2 saw net accretion of a robust $31.6 billion to the country’s forex reserves in Q2, compared with $19.8 billion in the previous quarter.

Net purchases by portfolio (FPI) investors in the Indian equity market continued to be strong through December quarter as well (net inflows of $19.7 billion through December 20), bolstering the capital account.

The narrowing of the current account surplus in Q2 was mainly on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter.

However, after remaining subdued in the first two quarters of this fiscal, merchandise trade deficit started rising again since October and hit a ten-month high of $9.9 billion last month, as a Covid-induced contraction in imports narrowed.

Trade deficit touched $18.6 billion in October-November.

Net services receipts increased both sequentially and on a year-on-year basis in Q2, primarily on the back of higher net earnings from computer services.

Private transfer receipts, mainly representing remittances by Indians employed overseas, declined on a y-o-y basis but improved sequentially by 12%t to $ 20.4 billion in Q2.

Net outgo from the primary income account, primarily reflecting net overseas investment income payments, increased to $9.3 billion from $8.8 billion a year ago.

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