Current account swings to a rare surplus

MUMBAI: Data released by the RBI shows that the country recorded a current account surplus of $600 million (0.1% of GDP) for the January-March 2020 quarter as against a deficit of $4.5 billion (0.7%) of GDP a year ago. The last time the current account was in surplus was over a decade ago in March 2007.
The surplus was generated because of the trade deficit shrinking to $35 billion and a sharp rise in net invisible receipts at $35.6 billion as compared to the year-ago period.
A current account surplus is seen as a positive for the rupee as it shows that the supply of dollars for trade is more than demand. The current account position is likely to remain positive in the first quarter of the current fiscal due to the sharp decline in oil prices and the general decline in imports.
For FY20, the current account deficit (CAD) narrowed to 0.9% of GDP from 2.1% in 2018-19. This was on the back of the trade deficit, which shrank to $157.5 billion in 2019-20 from $180.3 billion in 2018-19. The deficit caused by petroleum trade during the quarter was $24.5 billion as against $22.5 billion in the previous year.
The country’s revenue from the export of services increased to $22 billion in March as against $21.3 billion a year ago. The increase was high because of a rise in sales by IT companies. Private receipts — Transfers from Indians working abroad — jumped 14.8% to $20.6 billion. The January-March quarter also saw foreign direct investments double to $12 billion from $6.4 billion a year ago.
On a balance of payments basis (excluding valuation effects), foreign exchange reserves increased by $59.5 billion during 2019-20 as against a decrease of $3.3 billion during 2018-19. Foreign exchange reserves in nominal terms (including valuation effects) increased by $64.9 billion during 2019-20 as against a decline of $11.7 billion in the preceding year.
At the end of March 2020, India’s external debt was placed at $558.5 billion (20.6% of GDP), recording an increase of $15.4 billion over its level at the end of March 2019 (19.8% of GDP).
Short-term debt on residual maturity basis (including borrowing that falls due over the next 12 months) constituted 42.4% of total external debt at the end of March 2020 (43.4% at end-March 2019) and stood at 49.5% of foreign exchange reserves (57% at end-March 2019).

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