India created existing account surplus for the third straight quarter in Q2FY21, but the surplus moderated to $15.5 billion or 2.4% of the gross domestic item (GDP) in the quarter from $19.2 billion (3.8%) in Q1, according to information released by the Reserve Bank of India.
The surpluses have been enabled by a narrowing of the country’s generally really big merchandise trade deficit. This is mainly due to steeper decline in imports relative to exports, which reflects a demand slump in the economy.
Pertinently, the capital account — which is generally in considerable surplus but saw only a reasonably little surplus of $1 billion in Q1— reported a robust surplus of $15.4 billion in Q2.
Strong net FDI inflows of $25.6 billion boosted the capital account in Q2 (net FDI was minus $.8 billion in Q1), even though portfolio flows also enhanced sequentially (net inflows of $7 billion was recorded in Q2 largely reflecting net purchases in the equity market place against just $.6 billion in Q1).
On a balance of payment basis, Q2 saw net accretion of a robust $31.6 billion to the country’s forex reserves in Q2, compared with $19.8 billion in the preceding quarter.
Net purchases by portfolio (FPI) investors in the Indian equity market place continued to be powerful by way of December quarter as nicely (net inflows of $19.7 billion by way of December 20), bolstering the capital account.
The narrowing of the existing account surplus in Q2 was primarily on account of a rise in the merchandise trade deficit to $14.8 billion from $10.8 billion in the preceding quarter.
However, immediately after remaining subdued in the 1st two quarters of this fiscal, merchandise trade deficit began increasing once again considering the fact that October and hit a ten-month higher of $9.9 billion final month, as a Covid-induced contraction in imports narrowed.
Trade deficit touched $18.6 billion in October-November.
Net services receipts enhanced each sequentially and on a year-on-year basis in Q2, mainly on the back of larger net earnings from laptop services.
Private transfer receipts, primarily representing remittances by Indians employed overseas, declined on a y-o-y basis but enhanced sequentially by 12%t to $ 20.4 billion in Q2.
Net outgo from the main revenue account, mainly reflecting net overseas investment revenue payments, enhanced to $9.3 billion from $8.8 billion a year ago.