12 yrs on, cur­rent a/c to turn surplus

Hindustan Times (Jalandhar) - - HTBUSINESS - Asit Ran­jan Mishra asit.m@livemint.com

NEW DELHI: In­dia’s cur­rent ac­count may turn surplus in the June quar­ter af­ter a gap of 12 years, the fi­nance min­istry said, as a strin­gent coro­n­avirus lock­down squeezed do­mes­tic eco­nomic ac­tiv­ity and crimped im­ports.

The last time In­dia’s cur­rent ac­count turned pos­i­tive was in the March quar­ter of 2006-07 at $4.2 bil­lion.

How­ever, for the full year, cur­rent ac­count was pos­i­tive for three con­sec­u­tive years from 2001-02 to 2003-04.

Data for the March quar­ter is ex­pected to be re­leased by this month end.

“For­tu­nately, In­dia’s ex­ter­nal sec­tor has ac­quired re­silience, man­i­fest in im­prove­ment in bal­ance of pay­ments (BoP) po­si­tion de­spite be­ing chal­lenged by net FPI (for­eign port­fo­lio in­vest­ments) out­flows for some time,” the fi­nance min­istry said in its lat­est macro-eco­nomic re­port for May.

“A com­fort­able BoP rests on man­age­able cur­rent ac­count deficit (CAD), pru­dent ex­ter­nal debt and ro­bust avail­abil­ity of for­eign ex­change re­serves ad­e­quate to fi­nance more than 11 months of im­ports. 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. In­dia’s CAD is also sup­ported by low lev­els of ex­ter­nal debt ser­vic­ing,” it said.

SBI Re­search and Bar­clays have pro­jected a cur­rent ac­count surplus of $19 bil­lion or 0.7% of GDP in FY21.

Last month, Bar­clays termed it an ‘un­wel­come surplus’, since it will be driven by the lock­down.

Mer­chan­dise ex­ports in April and May con­tracted 47.5% while im­ports fell 54.7%, lead­ing to a trade deficit of $9.9 bil­lion against a $30.7 bil­lion deficit a year ago.

Mad­havi Arora, lead econ­o­mist at Edel­weiss Se­cu­ri­ties, said FY21 may see CAD im­prove to 0% as crude prices fall, while core im­port de­mand also re­mains bleak.

“We ex­pect ex­ports growth to re­main frag­ile amid de­mand shock...Im­port growth may re­main slug­gish as well amid weak do­mes­tic de­mand. Cap­i­tal ac­count may worsen in FY21 as dol­lar fund­ing could be a con­cern. BoP could re­main in surplus of ~$32-35 bil­lion, helped by lower cur­rent ac­count de­spite weak FPI hot money ap­petite,” she added.


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