The external sector is slowly weakening again

The external sector is starting to show its slippage again. Only the IMF’s SDR support helped the country maintain a stable balance of payments surplus during the September quarter.

The current account is again in deficit after a modest surplus last year, not only due to a growing trade deficit, but pressures are also mounting due to foreign investors bringing huge sums of money home. in return for their investments. Although the data suggests we are in a much better position than in 2012-13, when the CAD hit a low of 4.8% of GDP.

An AND analysis of the latest balance of payments figures shows that the $ 17. The support of billions of SDRs on August 21 contributed to the stable surplus of $ 31 billion in the quarter. This despite a current account deficit despite the main components of capital flows – foreign direct investment and combined portfolio flows – slowed sharply during the quarter to $ 13.3 million from $ 31.4 million during the quarter. from the period of the previous year. “(excluding SDR allocation) would reduce the surplus to $ 13.3 billion,” brokerage firm Emkay Global financial services said in a report.

The current account, which is the sum of countries’ imports and exports of goods and services, posted a deficit of $ 9.6 billion in the September quarter, not only due to a widening deficit trade to $ 44.4 billion from a deficit of $ 30.7 billion a year ago, but also an increase in net investment income outflows. They repatriated $ 15.8 billion during the July-September quarter compared to the $ 13.6 billion repatriated during the same period a year ago. For the first time, the central bank pointed out this factor as a reason for widening the current account deficit. “The net outflows from the primary income account, mainly reflecting net payments of investment income abroad, have increased sequentially as well as year-on-year,” RBI said. .

Even though the outside position doesn’t indicate the strength of FY’21, we may not be as bad as 2013. Supply interruptions, start of MD policy normalization and increase in Covid cases ”, said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. “The RBI’s foreign exchange reserves will remain crucial to stem the volatility of the rupee.”

The current foreign exchange reserves of $ 638 billion are further amortized by a net forward position of $ 52 billion. India has 11 month import coverage (goods and services) which provides macro stability. “However, as the BoP begins to flatten, the rupee would fundamentally be exposed to additional risk of depreciation,” said a report from global investment banking firm Jeffries. “We estimate that at over 2.0% CAD, India’s BoP is turning negative. Support for India’s BoP could come from the potential inclusion of Indian sovereign bond in global indices. ”

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Shirlene J. Manley