12 yrs on, current a/c to turn surplus
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.
THE LAST TIME INDIA’S CURRENT ACCOUNT TURNED POSITIVE WAS IN THE MARCH QUARTER OF 2006-07 AT $4.2 BN