India reports current account surplus of 0.9% in FY21

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India reported a current account surplus of 0.9% of GDP in the pandemic hit FY21, compared to a shortfall of 0.9% in FY20, as per the data released by the Reserve Bank of India (RBI).

Current account surplus

The current account surplus is a measure of a country’s trade where the value of the goods and services it exports exceeds the value of the products it imports. The current account surplus is an important factor representing the strength of a country’s external sector.

Measures that help India to report Current account surplus

The Reserve Bank of India said the current account balance turned into surplus territory due to a sharp contraction in the trade deficit to $102.2 billion from $157.5 billion in 2019-20.

Despite the pandemic, net Foreign Direct Investment of $44 billion in FY21 was up from $43.0 billion in 2019-20. In addition, net Foreign Portfolio Investment increased by $36.1 billion in FY21 from $1.4 billion a year ago, the central bank said.

Net foreign portfolio investment (FPI) increased by $7.3 billion – mainly on account of net purchases in the equity market, as against a decline of $13.7 billion in Q4 FY20.

RBI data shows that external commercial borrowing by India Inc registered an inflow of $0.2 billion as compared to $21.7 billion in 2019-20.

Foreign Exchange Reserves increases $87.3 billion in FY21

On a balance of payments basis (excluding valuation effects), foreign exchange reserves increased by $87.3 billion during the financial year 2020-21 as against an increase of $59.5 billion during the financial year 2019-20.

Whereas, foreign exchange reserves in nominal terms, including valuation effect, increased by $99.2 billion during the financial year 2020-21 as against $64.9 billion in the previous year.

Net external borrowings down to $6.1 billion

Net external commercial borrowings to India stood at $6.1 billion in the March quarter, down from $9.4 billion a year ago, the RBI said. Although, net invisible receipts were lower in FY21 due to an increase in net outgo of foreign investment income payments and lower net private transfer receipts, even though the net service receipts were higher as compared to the year-ago period.

Increase of Remittance

Private transfer receipts, which mainly represent remittances by Indians working abroad, rose to $20.9 billion, up 1.7% from the year-ago level. According to the data, the net outgo from the primary income account, which mainly reflects net foreign investment income payments, increased to $8.7 billion, from $4.8 billion a year ago.