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India’s current account surplus shrinks in July-September
Photo Credit: Reuters

India's current account surplus shrank to $15.5 billion in the July-September quarter from a record $19.2 billion in April-June as its merchandise trade deficit grew, the Reserve Bank of India said on Wednesday.

The surplus stood at 2.4% of the gross domestic product in the latest quarter, compared with a deficit of $7.6 billion, or 1.1% of GDP, in the same period a year ago, RBI data showed.

The recent current account surpluses – three straight quarters – has largely been caused by a decline in the country's trade deficit, caused by the COVID-19 pandemic, and by a drop in economic activity.

"The current account surplus remained robust in Q2 FY2021, despite the entirely expected moderation from the level recorded in the lockdown quarter, given the rise in imports in tune with the resumption in economic activities," said Aditi Nayar, economist at credit rating agency ICRA.

Net services receipts increased both sequentially and on a year-on-year basis, boosted by higher net earnings from computer services, the RBI said in the statement.

The country's merchandise trade balance recorded a deficit of $14.8 billion in July-September, compared with a deficit of $10.8 billion in the same quarter a year ago.

The Indian economy contracted 7.5% on the year in the September quarter, data released by the National Statistical Office showed last month, recovering from a decline of 23.9% in the June quarter.

RBI expects the economy to contract 7.5% in the current fiscal year to March 2021.

Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $20.4 billion, a rise of 12% from the previous year.

Net foreign direct investments recorded an inflow of $24.6 billion, as against inflows of $7.3 billion in same quarter the year before.

The balance of payments showed a surplus of $31.6 billion in the second quarter of the financial year 2021, compared with a surplus of $5.1 billion a year earlier.

"As the domestic recovery strengthens, we expect the current account surplus to decline substantially to under US$5 billion in H2 FY2021," said Nayar.

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