India Reports Record High Current Account Surplus Amid Demand Drop

India Reports Record High Current Account Surplus Amid Demand Drop

India saw a record high current account surplus a rarity for the economy in the April-June quarter as a precipitous drop in local demand led to sharper fall in imports compared to exports. The quarter also saw net portfolio and foreign direct investment flows slow to a trickle, while remittances from foreign workers fell.

Balance of payments data released by the RBI showed :

  • India’s current account balance recorded a surplus of $19.8 billion in the April- June 2020 quarter, compared to a surplus of $0.6 billion in the preceding quarter.
  • As a percentage of the GDP, current account balance rose 3.9% in the April- June 2020 quarter, compared to 0.1% in the preceding quarter.
  • Forex reserves saw an accretion of $19.8 billion in BoP terms during the quarter as compared to $14 billion in the previous quarter.

This is the second consecutive quarter that the economy has seen a current account surplus. It is also the highest on record.

Implication Of Current Account Surplus

As the RBI absorbs dollars, it has continued to supply rupee liquidity to the market. This, in turn, may suggest that there is a wider pool of local savings that could support an increased borrowing programme from the government. “Given the current account surplus, there are more savings in the economy than we think. So, India may be able to absorb a higher level of borrowing that most believe,” said Sajjid Chinoy, chief India economist at JPMorgan

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