India’s current account will swing to a surplus of $30 billion or 1.2 percent of GDP in FY21, due to slowdown in imports during the pandemic, a report said on September 22, making it clear that it will be a “temporary” phenomenon. The crucial number, which is one of the key aspects gauged while determining a country’s macroeconomic position, will swing back to a deficit of $15 billion in the next financial year, it said.
A lagged pickup in domestic non-oil imports, as well as the potential fresh restrictions that may be warranted in some major trading partners to ward off rising COVID-19 infections, are likely to restrict India’s current account surplus to $6 billion in the second half of the fiscal year, she added. On a net basis, the current account balance will swing into a sizable, albeit temporary, surplus of $30 billion or around 1.2 percent of GDP in FY21, the agency said.
Merchandise exports contracted by 36.7 percent to $51.3 billion in Q1 FY21 from $81.1 billion in Q1 FY20, but merchandise imports recorded a much sharper 52.4 percent decline to $60.4 billion in the same period as against $127 billion a year ago on severely constrained demand conditions. This compressed the merchandise trade deficit to $9.1 billion in the quarter, down from $46.0 billion in the year-ago period, it said, adding despite a contraction in services exports and imports, the services trade surplus rose to $21 billion in Q1 FY21 from $19.6 billion in Q1 FY20.
After experiencing a similar shock in April 2020 at the depths of the lockdown (-60.3 percent and -58.6 percent, respectively), merchandise exports and imports have displayed a varied recovery in the subsequent four months, the agency said.