India current account surplus at 0.9% in Q1FY22 after previous qtr deficit

Low fuel demand, higher NRI remittances drive surplus

India’s current account balance posted a surplus of $6.5 billion (0.9 per cent of GDP) in Q1FY22 as against a deficit of $8.1 billion (one per cent of GDP) in Q4FY21. The current account surplus was $19.1 billion (3.7 per cent of Gross Domestic Product (GDP) in Q1FY21, according to Reserve Bank of India (RBI).

The surplus in the quarter ended June 2021 (Q1FY22) was due to contraction in the trade deficit for goods to $30.7 billion from $41.7 billion in Q4FY21 and increase in net services receipts. The trade deficit for goods was $11.7 billion in Q1FY21.

Aditi Nayar, Chief Economist, Icra said the impact of the second wave of Covid-19 on demand for fuel and gold in particular, compressed the trade deficit leading to a current account surplus in Q1FY22. However, the size of the surplus was higher than Icra's forecast, led by an encouraging performance of the services sector and secondary income mostly comprising workers remittances.

Net services receipts increased, both sequentially and on a year-on-year (YoY) basis, on the back of robust performance of net exports of computer and business services.

The private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $20.9 billion, up 14.8 per cent from the level a year ago, RBI said in statement.

Net outgo from the primary income account, mainly reflecting net overseas investment income payments, decreased sequentially as well as on a YoY basis.

In the financial account, net foreign direct investment recorded inflow of $11.9 billion in Q1FY22 as against outflow of $0.5 billion in Q1FY21.

There was an accretion of $31.9 billion to the foreign exchange reserves (on a Balance of Payments basis) as compared with that of $19.8 billion in Q1FY21.

Nayar said the current account surplus seen in Q1FY22 will prove temporary, giving way to a roughly balanced position in Q2 FY2022. The balance is expected to move into deficit of around $10-12 billion each in Q3 and Q4 of FY2022, as demand recovers and economic activity reverts above pre-Covid levels. Overall, a current account deficit of $13-18 billion is expected for FY2022, which corresponds to a modest 0.5 per cent of GDP.