Due to a high trade deficit and low intangible net income, India’s current account balance recorded a deficit of US$8.1 billion (1% of GDP) in the quarter ending March 2021 (FY21 Q4) a report from Wednesday stated. The country’s current account deficit for January-March was US$8.1 billion, compared with a surplus of US$600 million in the same period last year.
According to data from the Reserve Bank of India, the deficit in the previous quarter accounted for 0.9% of GDP. However, the central bank stated that due to the sharp drop in the trade deficit to 102.2 billion U.S. dollars and which was 157.5 billion U.S. dollars in 2019-20. The CAD, the gap in the country’s total external revenue and expenditure is an important factor reflecting the strength of a country’s external sector.
The three consecutive current account surpluses were mainly due to the decline in India’s trade deficit, which was reduced due to the ongoing coronavirus pandemic, and the domestic economy also declined. The balance of payments, showed a surplus of US$3.4 billion in the fourth quarter of the 2020/21 fiscal year, compared with a surplus of US$18.8 billion in the same period last year.
Due to the increase in net outflows of overseas capital gains and the decrease in net private transfer income, net intangible income in FY21 was lower, although net income from services was higher than in the previous period, the central bank said.
Despite the pandemic, net foreign direct investment inflows of US$44 billion in FY21 exceeded US$43 billion in 2019-20, the report added. The Reserve Bank of India reported that, net foreign securities investment also increased by US$36.1 billion in FY21, compared with US$1.4 billion in the previous year. According to the Reserve Bank of India, India’s foreign business loans amounted to US$200 million, compared to US$21.7 billion in 2019-20.
According to the report, due to insufficient balances, US$87.3 billion accumulated in foreign exchange reserves. The Reserve Bank of India reported that the current account deficit in the March quarter was higher, mainly due to a higher trade deficit and lower intangible net income than the same period last year. Personal remittance income increased to 20.9 billion US dollars, a year-on-year increase of 1.7%, mainly from remittances from Indians working overseas.