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India posts lower current account deficit as economy ‘normalizes’

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India’s current account fell to a small deficit of $ 1.7 billion in the October-December quarter, from a surplus of $ 15.1 billion in July-September, the bank said on Wednesday. central part of the country.

The Reserve Bank of India (RBI) attributed the change to a widening of the merchandise trade deficit and an increase in net investment income payments.

The deficit stood at 0.2 percent of gross domestic product in the last quarter, down from a deficit of $ 2.6 billion, or 0.4 percent of GDP, in the same period a year ago, according to RBI data.

India went into a current account surplus for the first time in more than a decade in the January-March quarter of last year and hit a record $ 19.2 billion in the quarter from April to June.

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The three consecutive current account surpluses were largely caused by a decline in India’s trade deficit, which narrowed due to the COVID-19 pandemic and was also impacted by a related decline in the domestic economic activity.

“The current account balance strongly reflects the normalizing conditions of the national economy,” said Yuvika Singhal, economist at QuantEco Research.

She said that with the easing of coronavirus lockdowns from June of last year, “imports galloped at a much faster rate as festive and pent-up consumer demand rallied in the third quarter, so even as exports maintained their momentum “.

Recovery is gaining momentum

The economy returned to growth in the three months to December, increasing 0.4% year-over-year, and the recovery is expected to gain momentum as consumers and investors unwind the effects of the COVID-19 pandemic.

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The RBI expects the economy to contract 7.5% in the current fiscal year through March 2021 and rebound sharply to show 10.5% growth in the next fiscal year.

He said India’s merchandise trade balance recorded a deficit of $ 34.5 billion in October-December, down from a deficit of $ 36 billion in the same quarter a year ago.

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With repayments exceeding new disbursements, India’s external commercial borrowing recorded a net outflow of $ 1.7 billion in the quarter, up from $ 3.2 billion a year ago.

Net foreign direct investment recorded a robust inflow of $ 17 billion in the December quarter, compared to $ 9.7 billion in the same quarter in 2019, while foreign portfolio investment recorded an inflow of $ 21.2 billion. dollars against 7.8 billion dollars the previous year.

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The balance of payments posted a surplus of $ 32.5 billion in the third quarter of fiscal 2021, compared to a surplus of $ 21.6 billion a year earlier.

The faster-than-expected resumption of domestic growth, successful controls of the number of COVID-19 infections through February this year, and the rapid roll-out of vaccinations have all played a role in attracting foreign capital, a Singhal said.

QuantEco expects a BoP surplus of over $ 100 billion in 2020/21 and around $ 55 billion with downside risks in fiscal 22.

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