Current Account Surplus Could Halve in Q2 FY 2021

With a merchandise trade deficit of US$11.6 billion in July-August 2020 (US$27.3 billion in July-

August 2019), exceeding the US$9.1 billion recorded in Q1 FY2021 (based on data released by the Ministry of Commerce and Industry), ICRA anticipates that the size of the current account surplus would halve to around US$10 billion in Q2 FY2021.

"ICRA expects merchandise imports to stage a relatively faster recovery in H2 FY2021, with the economy slowly grinding to a new normal, the stabilisation in commodity prices and relatively sticky demand for gold closer to the festive and marriage season.

Simultaneously, the fresh restrictions that may be warranted in some major trading partners to ward off rising Covid-19 infections, are likely to arrest the further normalisation in exports.

Following the data release for Q1, ICRA has revised its expectation of the size of India's current account balance in FY2021 to US$35 billion or around 1.4% of GDP," ICRA has stated.

After having witnessed deep contraction in the lockdown quarter of Q1 FY2021, the performance of

merchandise exports and imports improved in July-August FY2021, as per the initial data released by the Ministry of Commerce and Industry.

However, the monthly performance has been mixed in Q2 FY2021. For instance, the pace YoY decline in merchandise worsened to 12.7% in August 2020 from 10.2% in July 2020.