Barclays forecasts $20 billion current account surplus in FY21

New Delhi, May 19 (IANS) There may be a silver lining to the economic disruptions caused by the Covid-19 pandemic, as India is likely to have a record current account surplus of about $20 billion or 70 bps of the GDP, according to a report by foreign brokerage Barclays.

The last time the country had a current account surplus was in the first quarter of 2006-07, also due to cheaper crude oil, according to an analysis by Barclays.

Following the nationwide lockdown since March 25, both exports and imports plummeted to all-time lows in April. Exports plunged by 60 per cent in the month, while imports collapsed by 59 per cent in April, resulting in the smallest monthly trade deficit in four years.

“We expect merchandise trade deficit to continue to narrow and forecast a shortfall of just $103 billion or 3.7 per cent of GDP in FY2020-21, relative to a trade deficit of 5.3 per cent of GDP in FY2019-20,” the report said.

“Our current account tracker points to a small current account deficit of $3 billion in Q1, followed by successive ‘unwelcome' surpluses, mirroring subdued economic activity. Given this, we raise our account surplus forecast to $19.6 billion or 0.7 per cent of GDP for FY21, up from $10 billion previously forecast,” Barclays said.

The report has also forecast $8 billion in current account surplus in the second quarter of FY2021, the first since the first quarter of FY2007.

Coining it as ‘unwelcome surplus', the report said it is an unwelcome development as the surplus will be driven almost entirely by the lockdown of the economy to contain the Covid-19 outbreak, and helped by the plunge in crude prices and not by excess exports earnings over imports.

The report further noted that the bigger impact on the current account balance will come from lower demand for both oil and non-oil imports.

However, some of these gains will be lost due to the pandemic-induced hits to service exports to the pandemic-ravaged US and the Middle East, as well as well as remittance inflows, the report said.

The report also expects the rising tide of capital outflows seen since March after a record surge earlier to stabilise in the second quarter of FY2021, but result in only a modest capital account surplus.

“But we still expect an overall balance of payments surplus of about $38 billion in FY21,” said the report, adding that another plus point is the surging forex reserves which are set to scale past the $500 billion market by the end of the fiscal, from $486 billion now.



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